Update on the One Big Beautiful Bill: A New Incentive for American-Made Vehicles Amid EV Tax Credit Phase-Out

In our previous discussion of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, we highlighted how it accelerates the end of key clean energy incentives, including the federal EV tax credit under Section 30D. This credit, worth up to $7,500 for new EVs and $4,000 for used ones, is set to expire between September 30, 2025, and June 30, 2026, potentially making electric vehicles less affordable for many buyers. However, the bill isn't all about cuts—it introduces a new tax deduction for auto loan interest on vehicles produced in America, which serves as a notable counterpoint. This incentive broadens support for domestic manufacturing and could soften the blow for consumers eyeing U.S.-built vehicles, including qualifying EVs. Let's dive into the details and explore its implications for residential and commercial energy scenes.

What Is the New Incentive for American-Made Vehicles?

The OBBBA creates a tax deduction allowing buyers to write off interest paid on auto loans for new vehicles assembled in the United States. This "Made in America" auto loan interest deduction aims to boost domestic production by making financing more attractive for American-made cars, trucks, SUVs, and other passenger vehicles.

Key features include:

  • Eligibility: Applies to new vehicles (not used or leased) with a gross vehicle weight rating under 14,000 pounds, purchased for personal use. The vehicle's assembly location is verified by its VIN. It covers cars, motorcycles, minivans, vans, and pickups, but excludes commercial fleets or salvage titles.
  • Deduction Amount: Up to $10,000 in qualified interest per tax year, though actual savings depend on the loan amount, interest rate, and the buyer's tax bracket. For example, on a $44,000 loan at 6.5% interest, a buyer might deduct around $3,000 in the first year, translating to $660 in tax savings for someone in the 22% bracket. The deduction decreases over time as more of the payment goes toward principal.
  • Income Limits: Full deduction for single filers with modified adjusted gross income (MAGI) of $100,000 or less, or joint filers at $200,000 or less. It phases out gradually (reducing by $200 for every $1,000 over the threshold) and is eliminated at $150,000 for singles or $250,000 for couples.
  • Timeline: Available for purchases starting in 2025 (or January 1, 2026, per some sources) and expiring in 2028 or 2029, unless extended.
  • Flexibility: Unlike some deductions, it can be claimed even if you take the standard deduction, making it accessible to more taxpayers.

This provision is part of the bill's broader push for "energy dominance" and domestic manufacturing, aligning with expansions in oil and gas production while providing a financial nudge for U.S.-built vehicles.

How Does This Counter the Loss of the EV Tax Credit?

While the OBBBA phases out the EV-specific tax credit, which directly reduced the purchase price at the point of sale, the new auto loan interest deduction offers an alternative form of relief for buyers of American-made vehicles—including EVs assembled in the U.S., such as those from Tesla, Rivian, or Ford. This acts as a counterpoint by shifting incentives from EV-exclusive subsidies to broader support for domestic production, potentially offsetting some costs for eligible buyers.

  • Potential Savings Comparison: The EV credit provided an upfront $7,500 boost, but the new deduction could yield $1,000–$2,200 in cumulative tax savings over a loan's life, depending on factors like credit score and loan terms. For subprime borrowers with higher interest rates, savings might be more substantial, though it's generally less generous than the EV credit.
  • Broader Applicability: Unlike the EV credit, this deduction applies to all qualifying vehicles, not just electrics. This could encourage purchases of American-made internal combustion engine (ICE) vehicles, hybrids, or plug-in hybrids, indirectly supporting the auto industry amid rising energy costs from the bill's fossil fuel focus. Critics note it doesn't fully replace the EV incentive, as it favors financed purchases and has income caps, potentially leaving out higher earners or cash buyers.
  • Impact on Residential Buyers: Homeowners financing a U.S.-built EV might recoup some costs through this deduction, helping mitigate projected household energy bill increases of $78–$192 annually by 2035 due to the bill's clean energy cuts. It promotes "Made in America" without discriminating by powertrain, aligning with the bill's pro-domestic ethos.
  • Commercial Considerations: Businesses might indirectly benefit if employees or fleets qualify, but the deduction is for personal use only. On the flip side, the loss of commercial EV credits (expiring July 30, 2025) could raise fleet electrification costs, though the bill's CAFE penalty reductions to zero might ease compliance for traditional vehicles.

Overall, this incentive reframes the conversation: While EV adoption may slow (with projections of 27–41 million fewer EVs by 2035), the deduction encourages buying American across vehicle types, potentially stabilizing domestic jobs and supply chains.

Conclusion: A Partial Offset in a Shifting Landscape

The new auto loan interest deduction for American-made vehicles provides a meaningful counterbalance to the EV tax credit's demise, offering tax relief that could save buyers hundreds to thousands while prioritizing U.S. manufacturing. However, its limited scope and smaller scale mean it won't fully replicate the EV incentive's impact on clean energy transitions. For residential and commercial users, this underscores the need to evaluate financing options quickly, especially with timelines looming. As with all tax changes, consulting a professional is advisable to maximize benefits.

Links (References)

Here are the sources cited above, with direct links for further reading:

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