Those who have been keeping up with the buzz surrounding taxes might already be quite familiar with some stuff trending that has to do with the former president. He’s pitching a new Tax Break on Car Loan Interest that would make interest on car loans tax-deductible. To start with in more simpler terms, this is likened to a home interest loan in that it allows homeowners to deduct the annual loan repayment. Why don’t we take a look at the below paragraphs brief and see how this can be advantageous to you.

The Proposal

The president’s proposal is to make car loan interest tax deductible. During a speech at the Detroit Economic Club, he compared this policy to the existing mortgage interest deduction. If available, according to statements contained by Bloomberg, the government could potentially obtain additional revenue, and such tax incentives could help foster the growth of the domestic automotive industry and enable millions of US households to easily afford owning a car.

Who Benefits the Most?

Here’s where it gets interesting. While the proposal might seem like it would benefit all car owners, tax experts suggest that the primary beneficiaries would be wealthier individuals. Why? Taxpayers will need to document their excess contributions as part of their expenses to make maximum use of this credit. Currently, only about 1 in 10 taxpayers itemize, and the majority of them are high-income earners. Consequently, it appears that individuals with greater income levels that buy luxurious vehicles will actually benefit from the provisions of the bill.

The Impact on Low-Income Workers

Unfortunately, the proposed tax break might not provide much relief for low-income workers. Most of such people usually opt to make use of the standard deduction instead of itemizing. As a result, they wouldn’t benefit from the car loan interest deduction. There are those who are of the view that the current legislation is not appropriately targeted towards addressing those with the greatest difficulty in repaying their car financing.

Cost to the Federal Government

Implementing this tax break would come at a significant cost to the federal government. There are predictions that adopting it would result to approximately $5 billion in lost income-tax revenue every year. Over a decade, this could add up to around $61 billion. That’s a hefty price tag, and it’s one of the reasons why the proposal might face opposition in Congress.

Final Thoughts

Sure, Trump’s proposal regarding discount on interest for car loan seems appealing and may be helpful to a certain category of tax payers. Wealthier individuals who itemize their deductions would likely see the greatest benefit, while low-income workers might not see much relief. As always, it’s crucial to stay informed and understand how these proposals could impact your financial situation.