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New Car Tax break Takes Affect, Aimed at Boosting US Manufacturing
Washington D.C. – August 9, 2025 – A new tax break for new car buyers went into effect today, offering a potential deduction on teh interest paid for auto loans on vehicles with final assembly in the United States. The provision,part of broader economic legislation passed in late 2024,aims to incentivize domestic manufacturing and support the automotive industry.
The tax deduction applies to interest paid on loans for new cars, trucks, and SUVs that undergo final assembly within the U.S.The amount of the deduction will vary based on individual tax brackets and the amount of interest paid. While the exact financial impact for each buyer will differ, analysts suggest the benefit is most meaningful for those with lower credit scores who typically face higher interest rates.
However, the financial benefit of the tax break is tempered by the significant depreciation new vehicles experience. According to Bankrate, new cars lose at least 10% of their value on the frist day of ownership, and an additional 10% to 15% annually thereafter.
Interest rates on auto loans also play a crucial role in the overall cost of vehicle ownership.As of June 2025, the average annual percentage rate (APR) for used vehicles is 10.9%, while new vehicles have an average APR of 7.3%, according to Edmunds. This difference in borrowing costs can make new cars more attractive, even with the depreciation factor.
Experts note that while the tax deduction may be less impactful for buyers with excellent credit who secure lower interest rates, it provides a tangible benefit to those working to rebuild or establish credit.”It actually helps the people in the most need,” explained Ivan Drury, Director of Insights at Edmunds, based in santa Monica, California. “If you are repairing your credit, if you have tarnished credit, if you have no credit, this stands to benefit you the most.”
Identifying vehicles Assembled in the USA
Approximately half of all new vehicles sold in the United States in July 2025 were manufactured domestically, Drury reported. Determining if a vehicle qualifies for the tax deduction requires verifying its “final assembly” location.
This data is typically found on a vehicle information label affixed to the car window at the dealership. Alternatively, the National Highway Traffic Safety Governance (NHTSA) provides a federal VIN Decoder tool that can pinpoint the assembly location based on the Vehicle Identification Number (VIN).
It’s vital to note that the “country of origin” can be misleading. Many vehicles marketed as “imports” are actually assembled in U.S. plants, such as the Toyota Camry (assembled in Georgetown, Kentucky) and the Honda CR-V (assembled in Ohio). Conversely, some vehicles branded as “American” are assembled in facilities outside the united States, like certain BMW models assembled in Spartanburg, South Carolina, but ultimately owned by a German company.
Dealerships are expected to be well-versed in the new tax break and able to provide assembly location information to customers. “Is the dealer going to talk this