This is a new benefit that replaced the old purchase credit. Starting in 2025 and running through 2028, buyers who finance an American-assembled EV can deduct up to $10,000 per year in loan interest from their taxable income.
A deduction works differently than a credit
Unlike a tax credit, which reduces your tax bill dollar for dollar, this is a deduction. It lowers your taxable income, so your actual savings depend on your tax bracket rather than being a fixed dollar amount. For example, someone in the 22% bracket deducting the full $10,000 would save around $2,200, while someone in a higher bracket would see a larger dollar benefit from the same deduction, since a higher bracket means each deducted dollar offsets more tax.
Key requirements
- The vehicle must be assembled in the United States
- You must have a loan; this doesn’t apply to leases or cash purchases
- Available annually through 2028, not a one-time benefit
- Can potentially be combined with the home charger credit if installed before its deadline
Why this matters even though it’s smaller than the old credit
The old $7,500 purchase credit was larger and applied instantly at the point of sale. This deduction is smaller in practical terms and requires financing rather than a cash purchase, but it’s a real, recurring benefit available every year you’re paying off a qualifying loan, not just a one-time reduction at purchase. For buyers financing a U.S.-assembled EV, it’s currently the main federal benefit left standing.
How this fits into the bigger financial picture
Since this deduction only applies to financed purchases, it’s one more factor worth weighing alongside state incentives when comparing your overall costs. Our post on what incentives are available for buying an EV covers how it fits alongside state and utility programs.
💡 Tip: Official guidance: IRS OBBBA FAQs. Want to see how this deduction affects total ownership cost? Try our EV vs Gas Calculator.