An act to amend Section 17072 of, and to add and repeal Section 17205 of, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.
Summary
AB 490 would create a temporary California personal income tax deduction for interest paid on a qualified motor vehicle loan. For taxable years beginning on or after January 1, 2026, and before January 1, 2031, taxpayers could deduct from adjusted gross income the interest paid on one loan used to purchase a personal-use vehicle. The bill also amends California’s conformity rules so that this new deduction is recognized in calculating adjusted gross income under the Revenue and Taxation Code.
The bill includes a sunset date and would repeal the deduction after December 1, 2031. It also adds legislative findings required for a new tax expenditure, stating that the purpose is to help Californians afford vehicle costs and identifying performance measures such as the number of taxpayers claiming the deduction and the average deduction amount. The Franchise Tax Board would be required to report annually to the Legislature beginning December 1, 2027 on use of the deduction, to the extent data is available.
Impact
AB 490 would expand California’s personal income tax law by creating a new above-the-line-style deduction at the adjusted gross income stage for auto loan interest, thereby reducing taxable income for eligible taxpayers. It would affect the Revenue and Taxation Code, specifically Section 17072 and new Section 17205, and would apply only to interest on one qualified motor vehicle loan per taxpayer. Because it is structured as a tax levy and takes effect immediately, it would become operative upon enactment for the specified future tax years, subject to the temporary operative period and repeal.
Sentiment
There is limited recorded discussion or voting history in the available materials, so overall sentiment cannot be measured from committee debate or floor votes. The bill’s framing suggests a supportive policy rationale centered on household affordability and relief from vehicle financing costs. Its inclusion of reporting requirements and performance indicators indicates an effort to justify the tax expenditure and monitor its effectiveness.
Contention
The main policy issue likely to generate debate is whether subsidizing car loan interest is an appropriate use of the tax code, since the bill creates a new tax expenditure that reduces state revenue. Potential concerns include whether the benefit is targeted enough, whether it disproportionately aids taxpayers who can already afford to finance a vehicle, and whether the deduction would meaningfully improve affordability for lower- and middle-income households. The bill also limits the deduction to one loan per taxpayer and sunsets after several years, which may be intended to address concerns about cost and scope.