DETROIT–Credit unions are likely to begin fielding inquiries from members related to a tax break on auto loan interest that was included in the recent spending and tax cut package passed by Congress.

That’s because as one analysis of the tax break noted, it comes “equipped with a trunk full of caveats.”

As the CU Daily reported here, America’s Credit Unions has also offered some direction on what the new tax break will mean for CU members and credit unions themselves. 

The Detroit Free Press said in its review of the language that created the tax break that the benefit to the borrower depends on how much money is borrowed, the interest rate on the loan, and how much money the borrower is making now and in the next few years.

And the tax break also only applies to new cars that had their final assembly in the United States, and does not apply to used cars or leases.

Jonathan Smoke, chief economist with Cox Automotive, told the Detroit Free Press that roughly 3.2 million new car loans — or a quarter of retail new vehicle transactions — potentially could qualify for the new tax break based on an analysis of cars sold and income limits for the new deduction on car loan interest.

A Key Point

One key point, according to the analysis: Higher income households will not see much or any of this tax break, even if they buy a U.S.-assembled car.

Overall, the report stated, “the intricate nature of taxes and car loans makes it impossible to give a best-guess estimate for how much an individual might save. It’s not as simple as seeing $500 off for military or first responders.”

But a general ballpark estimate suggests that tax savings could range from around $300 to $900 per year for many new car buyers, Patrick Anderson, CEO of the Anderson Economic Group consulting firm in East Lansing, Mich., told the Free Press.

Some Points to Know

Some general notes about the potential tax break:

• Beginning on 2025 tax returns, new car buyers can take an above-the-line deduction of up to $10,000 in car loan interest during a given tax year. The deduction would reduce a buyer’s taxable income in a given year, if you qualified.
• Borrowers who took out a car loan in January or February might still see the tax benefit. The interest must be paid on a new car loan that originated Jan. 1 or later.
• Borrowers to not need to itemize your deductions to qualify. You can still claim the standard deduction, as roughly 90% of individual filers do.

Note for Lenders

Lenders such as credit unions must file information returns with the Internal Revenue Service and provide statements to taxpayers showing the total amount of interest paid during the tax year.