The Interest on Your Car Loan Could Be Tax Deductible

The Senate has added an amendment to its newest economic stimulus bill that will make any interest paid on a new car loan tax deductible. If the stimulus package passes, every new car loan will effectively have a 0% interest rate. The amendment passed easily in the Senate with a 71-26 vote.

If the $800 billion stimulus package passes, new car buyers will save a lot of money on their car loans. Autoblog estimates that a typical buyer will save $1,500 if the tax on his or her $25,000 car loan is deducted. This will also mean that the car companies currently offering 0% interest through their corporate finance arms will stop in favor of cash incentives since you won’t really be paying the interest anyway. This should free up more money for cash incentives, so expect even deeper discounts in the coming months from car companies that are running low interest rate promotions right now.  
The tax deduction will apply only to new vehicles purchased in the 2009 calendar year, and will be available only to families earning less than $250,000 per year and individuals with salaries less than $125,000.
Nothing is set in stone yet though. Since the amendment making car loan interest tax deductible was added to the Senate version of the economic stimulus bill after the House approved the bill, the amendment will be up for negotiation by a House-Senate conference committee, according to the Baltimore Sun.