President Donald Trump‘s massive agenda law makes some new tax breaks available. That is, beyond making permanent a series of lowered rates from Trump’s signature domestic achievement from his first, nonconsecutive term, the 2017 Tax Cuts and Jobs Act.

One new provision in the Trump agenda bill, which he signed into law on July 4 and has memorably labeled the “one big, beautiful bill,” is a tax deduction of up to $10,000 per year of car loan interest. The provision isn’t entirely new. Car loan interest could be taken as an itemized deduction before the enactment of the 1986 Tax Reform Act, personal.

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This first such available federal car loan tax deduction in nearly 40 years couldn’t come at a better time, with prices for new and used automobiles rising like so much else. And it’s an added benefit in that the deduction can be taken without itemizing. Meaning middle-income earners, a group likely to be most hurt by rising car prices, can significantly reduce their taxable income, possibly leading to a lower bill due to the IRS and state authorities or a larger refund.

However, as with many tax deductions, credits, and other tax laws, the benefit comes with restrictions and limitations that could prove to be confusing for some people when they go to file their taxes in 2026.

One, the deduction is temporary because the Trump agenda law got through the Senate with Republicans using a special legislative procedure requiring a bare majority of 51 votes rather than support from at least 60 lawmakers in the 100-person chamber to overcome a filibuster. One part of this process, known in Senate parlance as reconciliation, provisions legislation being moved in this manner to increase the federal deficit beyond the next 10-year budget window.

So, as a practical matter, the auto interest deduction is good for tax years 2025 to 2028. The deduction will not be available for years 2029 and beyond unless it is extended.

Secondly, eligible vehicles must be new. No leased or used cars are allowed. The vehicles can be cars, vans, SUVs, and pickups, and must weigh under 14,000 pounds.

Another provision that could confuse is the assembly requirement. Eligible vehicles are required to have final assembly in the United States. Cars assembled overseas, including in Canada and Mexico, are not eligible. Therefore, owners of new American brand vehicles such as the Ford Bronco Sport (Mexico) and Ford Edge (Canada) will not be allowed to claim the deduction. However, car owners of a South Korean brand, Hyundai, assembled in Alabama, are eligible to deduct loan interest. So are Toyota owners, since the Japanese-owned brand assembles cars in Kentucky.

The new deduction also has income limits that phase out the deduction as owners earn more. The limit for single filers is $100,000 of adjusted gross income, and $200,000 for those married filing jointly. For every $1,000 above those thresholds, the deduction is reduced by $200 and eventually phases out entirely.

Very few borrowers will hit the $10,000 cap. One economist at NerdWallet estimated someone would need an auto loan of $110,000 or more to reach the full deduction. With the average price of a new car hovering around $49,000, it is likely most buyers would see a benefit of $500-$600 per year.

While savings of $500-$600 a year are still more appealing than nothing, another factor, unrelated to the tax bill, could see such savings wiped out or even reversed: Trump’s tariffs on automobiles, parts, and materials.

Ford recently released its second-quarter earnings, reporting that it expects tariffs to cost the company $2 billion in revenue this year. The automaker lost $36 million in the second quarter of 2025, compared to a $1.8 billion profit during the same period a year ago, despite higher sales.

While Ford makes most of its vehicles in the U.S., it (like nearly all carmakers) uses imported parts and materials, which include a 50% tariff on imported steel and aluminum.

Ford did say it absorbed most of the cost, and buyers will only see a 1% increase in prices this year. But the longer the tariffs remain, it will be difficult for the automaker to take on the increased costs.

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J.P. Morgan’s auto analysts put the savings from the interest deduction at a much lower level — $20 per month — while estimating consumers could see increased monthly payments from the tariff hit of $60 to $90 per month. The analysts said the cost of new cars could rise 6% to 9% overall in the fourth quarter compared to last year. They suggested dealers may have to offer the tax savings at the point of sale, given the increased costs and the complexities of determining which vehicles are eligible.

Trump touted the interest deduction on Truth Social when his agenda law proposal passed in the House of Representatives. It likely won’t be until the 2028 presidential campaign begins to find out if people are satisfied with the deduction and possibly factor it into their votes.

Andrea Ruth is a contributor to the Washington Examiner magazine.