To amend the Internal Revenue Code of 1986 to provide for special rules allowing taxpayers to deduct qualified passenger vehicle loan interest paid or accrued during the taxable year on certain indebtedness, and for other purposes.

Bill Summary

H.R. 3450, titled No Tax on Car Loan Interest, would temporarily allow individuals to deduct interest paid on certain passenger vehicle loans, treating that interest as not being nondeductible “personal interest” for a defined window of time. The bill amends Internal Revenue Code section 163(h) to carve out qualified passenger vehicle loan interest from the personal interest disallowance for taxable years beginning after December 31, 2024 and before January 1, 2029. In practice, that means tax years 2025 through 2028. The deduction is made an above-the-line deduction by adding it to section 62(a), so taxpayers can claim it whether or not they itemize.

To qualify, the interest must be paid or accrued during the year on debt incurred after December 31, 2024 to purchase an applicable passenger vehicle for personal use, and the loan must be secured by a first lien on that vehicle. The bill excludes several situations: loans for fleet sales, personal cash loans merely secured by a previously purchased vehicle, loans for commercial vehicles not used for personal purposes, any lease financing, loans to buy vehicles with salvage titles, and loans to buy vehicles intended for scrap or parts. Refinancing is permitted and can qualify so long as the new loan is also a first-lien loan on the same vehicle and does not exceed the refinanced principal.

There are two key limitations. First, a dollar cap: the amount of interest a taxpayer can take into account each year is limited to $10,000. Second, an income-based phaseout using modified adjusted gross income (MAGI): the allowable deduction (after applying the $10,000 cap) is reduced by $200 for every $1,000 (or fraction) by which MAGI exceeds $100,000 for single filers or $200,000 for joint filers. This is a steep phaseout. For example, a single filer whose MAGI is $150,000 would see a $10,000 potential deduction reduced by $10,000 (200 × 50), effectively eliminating it. For joint filers, a full $10,000 benefit would phase out by $250,000 MAGI. MAGI is defined as AGI increased by amounts excluded under sections 911, 931, or 933.

The bill broadly defines applicable passenger vehicle. It includes cars, minivans, vans, SUVs, pickup trucks, and motorcycles manufactured primarily for use on public roads; all-terrain vehicles (ATVs) designed for land use; and trailers, campers, and recreational vehicles designed to provide temporary living quarters (whether self-propelled or towable). A major constraint is a domestic final assembly requirement: the vehicle must have had its final assembly in the United States. The bill defines final assembly as the process by which a manufacturer produces a vehicle at a plant or factory and delivers it to a dealer or importer with all parts necessary for mechanical operation included, whether or not all parts are permanently installed. This means imported vehicles or vehicles assembled in Canada or Mexico would not qualify.

The bill sets up a new reporting regime akin to the mortgage interest Form 1098 system. New section 6050AA requires any person engaged in a trade or business who receives $600 or more in interest in a calendar year on a specified passenger vehicle loan from an individual to file an information return with the IRS and furnish a statement to the borrower by January 31 of the following year. The return must include the borrower’s name and address, total interest received, outstanding principal at the beginning of the year, loan origination date, and the vehicle’s year, make, and model (or other prescribed description). The Treasury is directed to issue regulations to administer the program and prevent duplicate reporting.

Notably, the deduction applies only to vehicles used for personal purposes; business interest remains governed by existing rules and is generally deductible for business use. The exclusion of lease financing means consumers who lease would not benefit, nor would fleet buyers or purely commercial vehicle purchases. The deduction applies to loans on both new and used vehicles so long as the vehicle’s final assembly occurred in the U.S. and the loan meets the post-2024 first-lien purchase requirement, but salvage-title vehicles are excluded. The policy is temporary (four tax years), capped, and phased out at middle-to-upper income levels, indicating an intent to deliver time-limited consumer relief during a period of elevated auto borrowing costs while encouraging purchases of domestically assembled vehicles. It would reduce federal revenue by allowing above-the-line deductions to a wide number of borrowers, with the total fiscal impact dependent on auto loan volumes and interest rates during 2025–2028. The administrative overlay for lenders resembles familiar reporting structures, but it does add compliance tasks. There may also be interpretive questions for mixed personal/business use and the interaction of the phaseout with AGI computations, which Treasury guidance would likely address.

Pros

Targets middle-class relief with a clear income phaseout starting at $100,000 single/$200,000 joint, making the benefit more progressive than a flat tax cut.
Above-the-line design lets non-itemizers, including many working- and middle-class filers, benefit without complex itemization.
Domestic final assembly requirement aligns with Buy American goals and can bolster U.S. auto jobs, suppliers, and unionized manufacturing plants.
Temporary four-year window and a $10,000 annual interest cap limit the fiscal cost and focus relief during a period of high borrowing costs.
IRS-style information reporting (similar to mortgage interest) promotes compliance, limits abuse, and provides data for program evaluation.
Excludes fleet and commercial purchases, ensuring the benefit is directed at consumers rather than corporate buyers.
Allows refinancing within strict limits, helping households restructure loans without losing eligibility.

Delivers broad, visible tax relief to drivers at a time of high auto loan rates and affordability pressures, especially benefiting suburban and rural households dependent on cars and trucks.
Maintains technology neutrality across EVs and internal combustion vehicles and includes pickups, motorcycles, and certain recreational vehicles common in many communities.
Supports American manufacturing and jobs by limiting eligibility to vehicles with final assembly in the United States.
Time-limited and capped design provides targeted relief without creating a permanent entitlement; sunsets help fiscal discipline.
Above-the-line structure is easy for taxpayers to claim and does not require itemization, while familiar information reporting aids administration.
Excludes leases, fleet, and commercial vehicles, reducing avenues for abuse and keeping the benefit focused on ordinary consumers.

Cons

Encourages personal vehicle purchases and indebtedness, potentially undermining climate goals, public transit investment, and walkable community priorities; it also covers ATVs and RVs, which can be emissions-intensive.
The domestic final assembly requirement could strain trade relationships, exclude many vehicles made in allied countries (including Canada and Mexico), and reduce consumer choice, especially in lower-price segments.
Excluding lease financing leaves out many consumers who rely on leasing for affordability or credit reasons, raising equity concerns.
Even with the phaseout, a $10,000 cap can deliver sizable benefits to buyers of expensive vehicles and recreational vehicles; resources might be better aimed at lower-income families or cleaner transportation.
Adds complexity to the tax code and creates a new tax expenditure that could be politically difficult to let expire, crowding out funding for other priorities.
The phaseout formula ($200 per $1,000 over threshold) is relatively steep and may produce cliff-like effects and calculation complexity for filers near the thresholds.
Ambiguity around mixed-use vehicles (personal and business) could create compliance uncertainty or opportunities for gaming.

Adds complexity to the tax code and picks winners by subsidizing a specific consumer finance product rather than delivering broader rate cuts or simplifying the code.
Creates a new reporting burden on lenders and additional IRS paperwork, running counter to deregulatory instincts and increasing compliance costs.
Uses income-based phaseouts that penalize higher earners and add marginal rate complexity; some may prefer a flat, across-the-board relief or lower rates instead.
Domestic final assembly requirement, while pro-manufacturing, could reduce competition and consumer choice and potentially invite trade challenges.
Including ATVs and RVs opens the bill to criticism as subsidizing non-essential “toys,” undermining the bill’s middle-class affordability narrative.
The temporary window may distort purchasing behavior (pulling demand forward) and end abruptly, creating uncertainty for consumers and dealers; a more durable, neutral tax policy might be preferable.

This bill was introduced on May 15, 2025 in the House.

View on Congress.gov:
https://www.congress.gov/bill/119th-congress/house-bill/3450

May 15, 2025

Referred to the House Committee on Ways and Means.

H11100
May 15, 2025

Introduced in House

Intro-H
May 15, 2025

Introduced in House

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This bill has not yet been enacted into law.

To amend the Internal Revenue Code of 1986 to provide for special rules allowing taxpayers to deduct qualified passenger vehicle loan interest paid or accrued during the taxable year on certain indebtedness, and for other purposes.

Bill Summary

Pros

Cons

Introduction

History

Referred to the House Committee on Ways and Means.

Introduced in House

Introduced in House

Laws Enacted

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