New Law Reshapes Car Tax Benefits

The big tax bill that President Trump signed into law in July includes three important provisions for any household considering a car purchase in the next few years.

• The federal tax credit for buying an electric vehicle ends on September 30^th. Right now, you can claim a $7,500 federal tax credit when you buy a new EV, or $4,000 for a used EV. Any electric vehicle bought or delivered after September 30, 2025 will not be eligible for any credit.

• The federal tax credit for buying and installing an EV charging station at home will end on June 30, 2026. Up until that date, you can receive a credit for up to 30% of the cost, with a maximum credit of $1,000.

• Interest payments on car loans may (temporarily) be tax-deductible. Between this year and through the 2028 tax year, if your income is below $100,000 ($200,000 for joint filers), you may be able to deduct up to $10,000 a year in interest costs for a car loan, but only if the car is new, made in America, and is under 14,000 pounds. You can claim the deduction even if you file a federal tax return and take the standard deduction. (You do not need to file an itemized return to claim this tax break.)

Don’t speed into buying a new car

By the time you read this, I expect we may already be pummeled with advertisements touting the tax breaks if you buy now. Car lots will have plenty of signs touting cars made in America.

Slow down, my friend.

A tax break is not a reason to make such a big investment. If you absolutely need a new car, then yes, taking these new car-related tax rules into account makes sense.

But what I have no patience for is you using these rules as a rationalization to buy a new car.

A car may be a need, but it is a very expensive need. The average new-car loan payment is more than $700 a month. The goal should always be to drive your car for as many years—and miles—that it is reliable. Yet so many households trade in for a new car every three to five years. That’s financially irresponsible.

As long as the car is in good condition—maintenance is key—you should be able to count on it for at least 150,000 miles. Being able to continue driving your car long after you have paid off any loan is the best financial move. Those are years you can put more money into a savings account for your eventual purchase of another car.

Please don’t use the new tax rules regarding car purchases as a reason to trade in a perfectly good car that has more years to get you where you need to go.