Purchasing a new car is often the second most expensive purchase many Americans make. President Donald Trump’s One Big Beautiful Bill Act (OBBBA) offers new benefits to prospective car buyers that might entice some to buy a car.
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However, personal finance expert Suze Orman warned in a recent article on her website of the dangers of using the new benefits to justify an unplanned purchase. Here’s why Orman believes the tax law changes aren’t a license to drive off with a new set of wheels.
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What Are the New Tax Changes?
The OBBBA provides three key tax changes relative to car buying. According to the IRS, one key change is a temporary tax deduction of interest on car loans through 2028. The maximum annual deduction is $10,000, and it phases out with modified adjusted gross income surpassing $100,000 for individuals ($200,000 for joint filers) annually.
Orman also noted two other changes, aimed at ending clean energy credits. Those include ending the federal tax credit of $7,500 for the purchase of a new electric vehicle (EV) and ending the $1,000 maximum credit on the installation of an at-home EV charging station. The credits now expire on Sept. 30, 2025, and June 30, 2026, respectively.
As with most taxes, there are various carve-outs that may make qualifying for deductions or credits difficult to obtain.
Orman cautioned about what Americans might see as a result of these tax changes. “By the time you read this, I expect we may already be pummeled with advertisements touting the tax breaks if you buy now. Car lots will have plenty of signs touting cars made in America,” Orman said.
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Why Benefits Aren’t a Reason To Purchase a New Car
The average cost of a new car is over $49,000, according to Kelley Blue Book, and tariffs may drive prices higher. Deductions or rebates may entice Americans to rush out to purchase a new car.
“A tax break is not a reason to make such a big investment. If you absolutely need a new car, then yes, taking these new car-related tax rules into account makes sense. But what I have no patience for is you using these rules as a rationalization to buy a new car,” Orman said.
Instead, Orman advised driving your car until it’s no longer reliable and focus on setting aside money in a savings account to purchase a car in the future.
Following recommended maintenance protocols is the best way to keep your current car reliable. Failing to do this and rushing to take on a car loan can have significant consequences not only for your budget but also for your long-term goals.
When Should You Buy a Car?
Although tax benefits could be good, they aren’t the only thing that should drive you to purchase a new car. A purchase should occur at the right time for your finances.
“If you truly need a car, I have no problem with that. But your goal should be to buy the least expensive car possible, finance it for the shortest time possible, and then drive it for as long as possible,” Orman said in a different article.
Ideally, you should have a minimum down payment of 20%. Furthermore, your total monthly transportation costs likely shouldn’t exceed 15% of your budget. It’s also wise to have an emergency fund before purchase. If you can reach or exceed these numbers and your car is no longer reliable, it becomes more feasible to justify the purchase.
Tax changes that benefit you can be beneficial. However, using them as justification to make an unplanned, expensive purchase can have serious ramifications. Review your finances thoroughly before jumping into action.
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This article originally appeared on GOBankingRates.com: Suze Orman: Why Tax Changes Shouldn’t Drive You To Buy a New Car
