Are you a car owner looking for a tax break that could potentially save you money on your auto loan interest payments? Former President Donald Trump recently proposed a new tax deduction specifically for car owners who pay interest on their auto loans. This tax break would allow car loan interest to be fully tax deductible, similar to the mortgage interest deduction that homeowners receive.
Now, you might be wondering if this proposed tax break would benefit you and how much of a benefit it could provide. Well, consider this: More than 100 million Americans had auto loans in the second quarter of 2024, totaling $1.63 trillion. The average car loan amount in 2023 was around $24,000, according to Experian. If you were to purchase a new vehicle this year, you could expect to pay an average of about $1,332 per year in interest charges, according to AAA.
However, it’s important to note that experts believe this tax break would primarily benefit wealthier individuals who purchase more expensive cars and itemize their taxes. Entry-level car buyers with more modest incomes who typically claim a standard deduction on their tax returns may not see as much of a benefit.
Although Trump didn’t provide specific details on how this tax break would be implemented, experts estimate that it could cost the federal government around $5 billion annually in income tax reductions if structured as an itemized deduction. Over a 10-year period, from 2025 through 2034, this tax break on car loan interest could cost approximately $61 billion, according to estimates.
Keep in mind that to take advantage of this tax break, you would need to itemize your tax return, which most taxpayers do not do. Around 9 out of 10 taxpayers claim the standard deduction, meaning that only a fraction of households would benefit from this deduction. Additionally, high-income filers tend to benefit more from tax deductions, as the value of the deduction is dependent on your marginal income tax rate.
So, while a tax break on car loan interest may seem appealing, it’s essential to understand the implications and assess whether it would truly benefit you financially. Stay tuned for more updates on this proposal and other personal finance insights on our website, Extreme Investor Network.