Trump's Auto-loan Interest Tax Break Off To Sluggish Start

President Donald Trump’s new $10,000 tax deduction for car-loan interest isn't getting much use — even as prices for new vehicles soar.

Just over 1.1 million taxpayers have taken advantage of the much-hyped break through April 8, a sliver of all filers and well below projections.

“We’re seeing lower-than-expected uptake," said Andrew Lautz, director of tax policy at the Bipartisan Policy Center.

Republicans billed the deduction as relief for Americans struggling with car payments as well as an incentive for automakers to come back to the U.S., and Trump is going on the road this week to promote it and other new deductions for tips, overtime and seniors.

But the car incentive is proving less popular than Trump's other breaks, with many in the industry saying it's too small to make much difference to car buyers, and comes with so many restrictions that most aren't eligible. That means Republicans will likely get little political juice out of the provision ahead of Wednesday's tax-filing deadline and heading into a tough midterm election cycle.

"It erases part of a car payment for one month," said Ivan Drury, a director at the car-shopping research company Edmunds.

Lawmakers have been touting the deductions as a salve for voters' concerns about inflation, which the government said last week had jumped to 3.3 percent in March; the tax incentives have also been overshadowed by the Iran war. Trump is hoping to refocus public attention though on the breaks this week, with campaign-style stops in Nevada and Arizona.

“You’ll hear a lot from the president about how his policies have benefited the American people,” a White House spokesperson said.

Confusion over the rules

The car-loan interest tax break pales in comparison to the overtime provision, with claims for that — 23.4 million and counting, according to the Treasury Department — already eclipsing the number of people who typically take the mortgage interest deduction.

An expanded standard deduction for seniors break is also popular, appearing on 19.6 million returns, while 5.6 million have taken advantage of the tips deduction, the Treasury said.

But the car-loan interest break has lagged even as the number of people and cost of making car payments soar. The average loan is now $44,000, according to Edmunds, with the typical monthly payment running $773.

Part of the issue is that lawmakers attached a number of conditions to the deduction that exclude the vast majority of those paying off car loans.

Only some new cars are eligible: They must have been purchased after Dec. 31, 2024; had their “final assembly” in the U.S.; and been financed with loans. The universe of cars that fit those criteria is roughly 6 million, the IRS says.

Taxpayers can enter their car’s vehicle identification number into a decoder set up by the National Highway Traffic Safety Administration. But Lautz wondered if some people are still confused, in part because some American cars are finished abroad, while some foreign models have it in the U.S.

“I’m wondering if there’s confusion over the Made-in-the-U.S.A. requirement,” he said.

Lawmakers also imposed relatively tight income caps on who could claim the break — it begins to phase out when couples make more than $200,000 — which further limit eligibility. Most cars sold in the U.S. are used, and people who buy new tend to have higher incomes.

And the break is less generous than it appears.

Few people will pay enough interest to use the entire $10,000 in allowable annual interest. The average car buyer owes $3,800 in interest payments the first year, according to Cox Automotive, which would translate into tax savings of somewhere in the neighborhood of $600.

That’s not enough to make it a major factor in people’s car-buying decisions, Drury said. People tend to be much more focused on the price of the car and the style and the brand.

“Does this change your calculus on what vehicle you’re going to buy?” he said. “No way."

EV credit was more popular

Drury said a $7,500 tax credit for purchasing an electric vehicle that Republicans simultaneously eliminated with the One Big Beautiful Bill was a much bigger deal to car buyers. “It’s nothing compared to the $7,500 credit,” Drury said.

But some say it’s too early to draw conclusions.

Republicans’ tax cuts didn’t get signed into law until July last year, so people haven’t had much time to react to the new break, if they were even aware of it. Lawmakers made the provisions retroactively available to Jan. 1 of last year, so many of the cars now being claimed were bought before the deduction was even on the books.

Interest in the auto-loan interest tax break could grow as more people buy eligible cars. The Joint Committee on Taxation predicted the break would cost $2 billion in 2025, $5.4 billion in 2026 and $10 billion in 2028.

“You’re going to have one year’s worth of sales [eligible for the break], and then two year’s worth and then three year’s worth,” said Joe Rosenberg, a senior fellow at the Tax Policy Center. “It should increase over time, both in terms of the number of people claiming it and the total amount deducted.”