by Tax Benefits for Auto Loans in the USA
In the USA, buyers of new cars can receive tax benefits on loan interest. The new law allows deducting up to $10,000 in annual interest payments from the tax base. However, it turns out that only 1% of loans for new cars have such high interest payments. The majority of consumers will not receive substantial benefits.
According to an analysis by Cox Automotive, to fully utilize the $10,000 benefit, a loan of approximately $112,000 is required. The average car loan in the USA is about $43,000. Loans exceeding $100,000 are typically taken out for premium brands such as Porsche, Lamborghini, or McLaren.
Limitations for Receiving Benefits
The benefit applies only to new cars manufactured in the USA. Furthermore, there are income limitations: for individuals with an income over $100,000, the benefit amount decreases by $200 for every additional $1000 of income. The benefit is not provided in full to those earning over $150,000 (or $250,000 for married couples).
Experts believe the average buyer will receive a tax benefit of about $3,000 in the first year of the loan and $2,000 in subsequent years. For most, this means a tax reduction of only about $500 per year.
Although the law was created to support the auto industry, its actual benefit is limited to a small group of buyers of expensive cars. The majority of Americans who buy cars in the average price range will receive only minor financial assistance. This may raise questions about the effectiveness of such initiatives for stimulating the market.
