The proposal was championed by the National Automobile Dealers Association and is backed as a "top priority" by President Barack Obama.
The provision was not in a House-passed version of the more than $800 billion package of spending increases and tax cuts.
A conference committee will decide whether the provision stays in. If the measure passes, taxes on auto loans will be deductible for the first time since 1986.
The provision on deductibility of loan interest is the first significant measure aimed at getting consumers back into showrooms and buying vehicles to get action from Congress. NADA says the measure will save consumers about $1,500 on a $25,000 vehicle.
Some experts have criticised the provision for not having enough up-front punch. Too many worried would-be buyers aren't thinking ahead to cutting future tax bills, they argue.
But the measure is a significant incentive and NADA had to focus on what could be accomplished politically, an organization spokesman said today.