New USA CAR Act Offers 'Above-the-Line' Tax Deduction for US-Assembled Car Loan Interest Starting in 2025

The new United States Automobile Consumer Assistance and Relief Act (USA CAR Act) is rolling out a major change to how you handle car loans on your taxes. Starting with loans taken out on or after January 1, 2025, you can deduct the interest you pay on a car loan directly from your income, making it a valuable new tax break. This is a game-changer because, unlike most previous car loan interest, this deduction is taken “above-the-line,” meaning it reduces your Adjusted Gross Income (AGI) even if you take the standard deduction—which most people do.

The All-Important U.S. Assembly Rule

Before you start shopping for a new ride solely based on this tax break, there’s a crucial catch: the deduction only applies to what the bill calls a “qualified automobile.” A qualified automobile is defined as a vehicle where the final assembly took place within the United States. The bill is clear that this is where the manufacturer puts the car together before it ships to the dealer. If you buy a car assembled overseas, the interest on that loan won't qualify for this new tax treatment, full stop. This provision (SEC. 2) essentially creates a financial incentive for consumers to choose vehicles assembled domestically, directly linking a personal tax benefit to supporting U.S. factory jobs.

What This Means for Your Wallet

For most people, car loan interest has been a sunk cost—non-deductible unless you itemized deductions, which rarely made sense. Now, if you buy a qualifying U.S.-assembled vehicle, that interest becomes a direct reduction in your taxable income. Think of it like this: if you pay $2,000 in interest on your qualifying car loan next year, that $2,000 is subtracted from your income before the IRS calculates your tax bill. This makes the effective cost of borrowing for a U.S.-assembled car lower than for an imported one, potentially making the U.S. option cheaper overall, even if the sticker price is slightly higher.

The Two-Tiered Car Market

While this is a clear win for domestic manufacturing and the people who buy those cars, it sets up a two-tiered system for consumers. If your preferred vehicle—maybe a specific minivan or a highly efficient import—is assembled outside the U.S., you miss out on this tax break. For example, a small business owner who needs a reliable, imported work truck will pay the full cost of the loan interest, while a neighbor buying a similar truck assembled in the U.S. gets a tax subsidy. This policy (SEC. 2) doesn't just favor one car over another; it uses the tax code to push consumer choice toward domestically assembled products. It’s a straight-shooting policy aimed at influencing where cars are built, and it’s doing it right on your tax form.