Can You Claim Both the $7,500 EV Credit and the $10,000 Auto Loan Interest Deduction for Buying a Tesla? The One Big Beautiful Bill Act Says You Might—But There’s a Catch

As of 2025, U.S. taxpayers have a potentially powerful tax-saving opportunity when purchasing a domestically assembled electric vehicle (EV). Thanks to two separate federal incentives—one from the Inflation Reduction Act (IRA) and the other introduced under the One Big Beautiful Bill Act (OBBB Act)—you may be able to claim:

• A $7,500 federal clean vehicle tax credit, and

• A deduction of up to $10,000 in auto loan interest.

And yes, under current rules, you can claim both, as long as you meet the requirements. But while the incentives sound generous, the real-world math paints a different picture—and might explain why some automakers (including Elon Musk) are skeptical of the policy’s effectiveness.

The Two Incentives Explained

1. $7,500 Clean Vehicle Tax Credit (from the Inflation Reduction Act)

This credit is available through September 30, 2025, for qualifying EVs that meet the following conditions:

• Final assembly in North America;

• Battery components sourced per U.S. mineral standards;

• MSRP under limits ($55,000 for sedans, $80,000 for SUVs/trucks);

• Buyer’s AGI must be under $150,000 (single) or $300,000 (joint);

• Tesla’s Model 3 and Model Y still qualify under many configurations.

2. Up to $10,000 Auto Loan Interest Deduction (from the One Big Beautiful Bill Act)

This new deduction became law in mid-2025 and allows taxpayers to deduct up to $10,000 per year in personal-use auto loan interest, under these conditions:

• The car must be new, purchased in 2025 or later, and assembled in the U.S.;

• The loan must be secured and used for a personal-use vehicle (not business use);

• Your AGI must be under $100,000 (single) or $200,000 (joint) to qualify for the full deduction;

• The deduction is available only for cars purchased from 2025 through 2028.

Can You Use Both?

Yes. These two benefits are stackable because they apply differently:

• The $7,500 is a tax credit (it offsets your tax liability);

• The $10,000 is an above-the-line deduction (it lowers your taxable income).

So if you purchase and finance a qualifying U.S.-made Tesla in 2025, you could potentially claim both in the same tax year.

Example: Combined Tax Savings

You finance a $60,000 Tesla Model Y in 2025 with a secured auto loan at 6.5%:

• You claim the $7,500 federal credit;

• In year one, your loan generates $3,800 of interest, which is deductible;

• If you're in the 24% tax bracket, the deduction saves about $912;

• Total tax benefit: $8,412.

Reality Check: Does Anyone Actually Pay $10,000 in Year-One Interest?

Here’s where the numbers start to unravel.

U.S. Auto Loan Trends (2025)

• Average loan term: ~68 months (5.7 years)

• Typical terms: 36, 48, 60, 72, or 84 months

• APR for new cars: 6.35% average, up to 10–12% for subprime borrowers

• Loan amounts: $40,000–$60,000 common; $70,000+ for luxury EVs

How Much Interest Would You Need?

To hit $10,000 in interest in one year, you’d need:

• A loan amount over $80,000

• An interest rate of 9% or higher

• A loan term of 6–7 years

But here’s the problem: Taxpayers earning $100,000 or $200,000 typically don’t take out loans that large—and if they do, they often qualify for low-interest financing or pay cash.

Example: A $70,000 loan at 6.5% over 60 months pays just ~$2,400 in first-year interest.

Who Actually Benefits?

Let’s look at the overlap between likely deduction eligibility and real-world interest paid:

Low-income (<$80K): Likely qualifies, but unlikely to afford a new EV
Middle-income: May qualify, but rarely finances enough to claim full $10,000
High-income: Phased out, and usually doesn’t finance with high interest

The irony: the people most likely to pay high interest are subprime or stretched borrowers, who are least likely to afford a new Tesla or meet EV credit requirements.

Maybe That’s Why Elon Musk Isn’t a Fan

Tesla’s CEO Elon Musk has publicly expressed skepticism toward EV tax credits that, in his view, distort the market or fail to help actual consumers. This may be one of them.

• The deduction encourages debt, but not among those who actually need help buying EVs;

• It disproportionately benefits lenders, not buyers;

• And it’s complicated, requiring aggressive loan terms that most financially literate buyers will avoid.

The law sounds populist, but structurally, it helps a very narrow slice of buyers—those just under the income threshold who borrow heavily to buy expensive U.S.-assembled cars.

Tax Planning Takeaways

Before relying on the $10,000 deduction:

• Check your AGI to ensure you're under the phaseout threshold;

• Calculate your expected interest in year one;

• Ensure the vehicle qualifies (new, purchased in 2025 or later, U.S.-assembled);

• Talk to a tax advisor—especially if financing more than $50,000;

• Don’t let the deduction drive you into a longer or higher-interest loan that doesn’t make financial sense.

Final Thoughts

The One Big Beautiful Bill Act created a compelling incentive on paper, but real-world numbers suggest it’s far more limited than it seems. Most buyers won’t come close to the $10,000 deduction—though many will still benefit from the $7,500 clean vehicle credit.

If you’re planning to buy a Tesla or any EV in 2025, this may still be one of the most favorable windows for tax planning—just make sure you’re doing the math, not just following the headlines.