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Trump’s budget bill will impact every aspect of the economy<\/p>\n
The budget bill just passed and signed into law will touch the lives of every American, one way or another. Will you be better or worse off?<\/p>\n
For value-minded consumers, used cars are generally considered a better deal than new cars.\u00a0\u00a0<\/p>\n
Does the new Trump tax break change that equation?\u00a0<\/p>\n
The One Big Beautiful Bill Act promises \u201cNo Tax on Car Loan Interest<\/a>.\u201d It\u2019s one of several novel tax cuts<\/a> in the new law.\u00a0\u00a0<\/p>\n Here\u2019s what the \u201cno tax\u201d provision<\/a> actually means: Between now and 2028, car buyers may deduct the interest they pay on new car loans. The tax break goes away in 2029.\u00a0<\/p>\n There are several caveats. Among them:\u00a0<\/p>\n President Donald Trump<\/a> tailored the tax break to reward automakers for building vehicles in America, and consumers for buying them.\u00a0\u00a0<\/p>\n Is the ‘Big Beautiful’ tax break a game-changer?<\/p>\n Is the new deduction big enough to change the dynamics of the car marketplace?\u00a0<\/p>\n Probably not, experts say.\u00a0\u00a0<\/p>\n \u201cIt may very slightly privilege the vehicles that are built domestically,\u201d said Sean Tucker<\/a>, lead editor at Kelley Blue Book. \u201cBut in the end, we don\u2019t think this will have too much of an impact. It\u2019s just not a big number, and it\u2019s not going to be around for a while.\u201d\u00a0<\/p>\n First of all, let\u2019s make this clear: The tax break is a deduction, not a credit.\u00a0\u00a0<\/p>\n Tax credits reduce how much tax you owe: A $10,000 tax credit lowers your tax bill by $10,000.\u00a0\u00a0<\/p>\n Tax deductions reduce your taxable income. If you\u2019re paying a 22% tax rate, a $10,000 deduction lowers your tax bill by $2,200.\u00a0\u00a0<\/p>\n \u201cThe $10,000 sounds really, really good, but the final number on the tax savings will be a surprise for a lot of taxpayers,\u201d said Miklos Ringbauer<\/a>, a CPA in Southern California.\u00a0\u00a0<\/p>\n In practice, few taxpayers are likely to ring up anywhere near $10,000 in deductible interest on a new-car loan, according to auto-industry experts.\u00a0\u00a0<\/p>\n Consumer Reports estimates the average buyer might save about $500 a year with the new tax break, \u201cwhich isn\u2019t nothing,\u201d said Keith Barry<\/a>, senior autos reporter. \u201cBut the difference in cost between a new car and a used one could easily be in the thousands of dollars.\u201d\u00a0<\/p>\n A $23k price gap separates new and used cars<\/p>\n The average new car sold for $48,907 in June<\/a>, according to Kelley Blue Book. The average used car listed for $25,512<\/a> in early July. The price difference works out to just over $23,000.\u00a0\u00a0<\/p>\n All else being equal, that figure \u2013 $23,000 \u2013 is how much you\u2019d have to save from the new tax deduction to make a new car a better deal than a used one.\u00a0\u00a0<\/p>\n \u201cWe\u2019re finding that on the average loan now, the buyer\u2019s paying about $2,000 a year in interest,\u201d Tucker said. The new tax break, he said, \u201cwould save them about $400.\u201d\u00a0\u00a0<\/p>\n With $400 in annual savings, it would take about 58 years to save $23,000 on a new car loan. Car loans are getting longer<\/a>, but not that long.\u00a0\u00a0<\/p>\n Of course, there are good reasons why new cars cost more than used ones. A new car is likely to last longer than a used vehicle. New cars often have generous warranties. Repair costs rise with the age of the vehicle.\u00a0\u00a0<\/p>\n New car buyers pay a premium<\/p>\n Car buyers pay an inordinate premium for new vehicles. An old axiom holds that a new car loses $1,000 in value when you drive it off the lot.\u00a0\u00a0<\/p>\n That figure is hopelessly dated, given the rising cost of new cars. In fractional terms, new vehicles lose at least 10% of their value<\/a> on the first day you own them, and 10% to 15% percent of value per year after that, according to Bankrate.\u00a0\u00a0<\/p>\n Another perk for new car buyers: New-car loans tend to carry lower interest rates than used-car loans. The average annual percentage rate in June was 10.9% for used vehicles<\/a>, 7.3% for new ones, according to Edmunds.\u00a0\u00a0<\/p>\n Because borrowing costs are lower for new cars, a tax deduction on the interest might be less meaningful on those transactions, car experts say.\u00a0<\/p>\n However, the tax break could prove useful for new-car buyers with lower credit scores, because they tend to pay higher interest rates.\u00a0<\/p>\n \u201cIt actually helps the people in the most need,\u201d said Ivan Drury<\/a>, director of insights at Edmunds. \u201cIf you are repairing your credit, if you have tarnished credit, if you have no credit, this stands to benefit you the most.\u201d\u00a0<\/p>\n How to determine if a car was ‘made in USA’<\/p>\n Trump\u2019s new-car tax break may not be a game-changer, analysts say, but it could nudge some new-car buyers toward vehicles assembled in the United States.\u00a0\u00a0<\/p>\n Roughly half of new vehicles sold in the United States last month were manufactured in this country, Drury said.\u00a0\u00a0<\/p>\n To qualify for the deduction, a car or truck must have its \u201cfinal assembly\u201d in the United States. That information is listed on a vehicle information label, generally affixed to the car window at the dealership. A federal VIN Decoder<\/a> can also tell you where a vehicle was assembled.\u00a0\u00a0\u00a0<\/p>\n\n