One Big Beautiful Bill - Updates to State Taxes, Car Loans, EVs and Commercial Vehicles
The One Big Beautiful Bill has had many key impacts on middle- and high-Income families related to tax. Here’s a quick overview.
State Tax Deduction: “Cap raised to $40,000” with “tiered income limits.”
Car Loan Interest: “Deductible,” “up to $10,000,” “also subject to income limits,” valid from “2025–2028.”
Energy-Efficient Equipment: “Credit eliminated.”
EV Tax Credit: “Ends early.”
Large Commercial SUV Depreciation: “First-year 100% deduction restored.”
Let’s go into these topics in a little more detail to see what’s changed.
Increase in State Tax Deduction (SALT)
Starting in 2025, for single or joint filers with income up to $500,000, the state tax deduction will increase from the current $10,000 to $40,000. However, a tiered income limitation applies:
For households earning over $500,000, only 30% of the excess amount over $500,000 will be deductible.
For those earning $600,000 or more, the deduction remains capped at $10,000 as before.
Fortunately, the bill does not affect the PTET (Pass-Through Entity Tax) workaround. This means individuals can still pay state taxes through business entities such as LLCs or partnerships, potentially bypassing the SALT deduction limit.
Additionally, starting in 2026 and until 2029, the $40,000 SALT limit will increase by 1% annually.
New Deduction for Car Loan Interest
Before this bill, personal expenses such as car loan interest were generally not deductible—under U.S. tax law, only business expenses could reduce taxable income.
Under the new rules, from 2025 through the end of 2028, interest on loans for personally used vehicles will be deductible, up to a maximum of $10,000.
Like the SALT deduction, the car loan interest deduction has tiered income limits:
Single filers earning $150,000 or more, and joint filers earning $250,000 or more, will not qualify for the deduction.
Other requirements:
The car must be brand new and assembled in the U.S.
For mixed-use vehicles (e.g., 20% personal, 80% business use), the business-use portion of the interest (80% in this example) remains deductible as a business expense.
Elimination of Clean Energy Tax Credits
The bill removes tax credits for residential energy-efficient equipment (such as solar panels, energy-efficient water heaters, or windows).
Homeowners installing such equipment from 2026 onward will no longer be eligible for any tax credit.
Early End to EV Tax Credit
Previously, single filers earning up to $150,000 or joint filers earning up to $300,000 could receive a $7,500 tax credit for EV purchases. This credit will now end early, on September 30, 2025, regardless of income.
In reality, since 2023, higher-income households in EV-friendly states like California and Washington have already been ineligible for EV credits. Thus, for many middle- and high-income buyers, this change will have little impact on purchasing decisions.
Historically, since 2009, the EV tax credit policy has indirectly supported the EV industry by providing credits to qualifying buyers regardless of income, later expanding to include leased EVs. In recent years, eligibility narrowed to U.S.-assembled vehicles and lower-income buyers. The early repeal of the credit indicates the federal government will no longer subsidize consumers to promote EV adoption or clean energy development.
Restoration of 100% First-Year Depreciation for Large Commercial SUVs
The bill restores 100% bonus depreciation in the first year for SUVs over 6,000 pounds used primarily for business.
In the 2017 tax reform, 100% first-year deductions were allowed, but limits were later introduced, reducing accelerated depreciation to 40% in 2025. This bill eliminates those limits, returning to pre-2022 rules.
Thus, any qualifying SUV placed in service on or after January 20, 2025, will be eligible for a full 100% deduction.
The “One Big Beautiful Bill” introduces numerous exceptions that further complicate an already complex U.S. tax code.
Examples:
The century-old principle that personal expenses are not deductible now has an exception for personal car loan interest.
The long-standing rule that all income, regardless of source, is taxable now has an exception for certain tips under this bill.
Similarly, under Trump’s “Golden Card” policy, lawful permanent residents are exempt from U.S. tax on foreign income—another exception to the core principle that U.S. tax residents are taxed on worldwide income.
