Starting in 2025, a new set of rules will change how car loan interest is deducted and reported. The One Big Beautiful Bill Act (OBBBA) introduces both a temporary above-the-line deduction for auto-loan interest and a new lender reporting regime under IRC § 6050AA. While these updates bring new opportunities for taxpayers, they also come with compliance requirements that lenders should begin preparing for now.
A Temporary Deduction for Auto-Loan Interest
For tax years 2025 through 2028, individuals may claim an above-the-line deduction of up to $10,000 per year for interest paid on qualifying new car loans. This means the deduction is available whether or not the taxpayer itemizes.
However, the benefit begins to phase out as income rises. For joint filers, the deduction is reduced by $200 for every $1,000 of modified adjusted gross income (AGI) above $200,000, and it fully phases out at $250,000. For all other filers, the phase-out begins at $100,000 and ends at $150,000.
Only certain vehicles qualify. The loan must be for a new vehicle, acquired after December 31, 2024, and the vehicle must be used personally, not for commercial or fleet purposes. Final assembly must occur in the United States, and the gross vehicle weight rating must be under 14,000 pounds. Eligible types include cars, minivans, vans, SUVs, pickups, and motorcycles.
The loan must also be secured by a first lien on the vehicle, and the taxpayer must list the VIN on their tax return. Refinances are permitted, but not if they involve a cash-out component. Leases, salvage or scrap vehicles, and related-party loans do not qualify.
New Reporting Rules for Lenders
The second major component of the OBBBA is the creation of a new reporting requirement under IRC § 6050AA. Any business receiving $600 or more in interest from an individual on a specified passenger vehicle loan (SPVL) during a calendar year must file an information return with the IRS.
This return must include key details such as:
- Borrower identification
- Total annual interest received for the calendar year
- Principal balance as of January 1 (the beginning of the calendar year for which interest is reported)
- Loan origination date
- Vehicle year, make, model, and VIN
Lenders must also provide a corresponding statement to each borrower by January 31 of the following year.
Transitional Relief for 2025
Recognizing the complexity of implementing a new system, the IRS issued Notice 2025-57, granting one year of transitional relief. For the 2025 tax year only, lenders can satisfy § 6050AA reporting requirements by issuing a single year-end “total-interest” statement to each borrower by January 31, 2026.
If lenders comply with this simplified rule on time, no penalties will be imposed under § 6721 or § 6722. The relief period provides valuable breathing room to adapt systems and processes without facing immediate penalties.
Practical Steps for Lenders
Even with this relief, 2025 is a critical year for preparation. Lenders should use the time to:
- Inventory new originations: Identify and flag loans that meet the SPVL criteria.
- Update systems: Ensure platforms capture required data points such as VIN, GVWR, lien priority, and final assembly status.
- Design borrower statements: Create a compliant statement format for 2025, ideally with online access through a borrower portal.
- Document compliance: Keep records showing that 2025 borrower statements were delivered by January 31, 2026.
- Plan for 2026: Build internal controls and processes for full § 6050AA compliance once transitional relief ends.
A New Era for Auto Loan Reporting
The 2025 transitional relief offers a short window to prepare for a much more detailed reporting regime. Lenders who take proactive steps now will be better positioned to handle the full rollout in 2026 and beyond. For borrowers, the temporary deduction could provide meaningful savings at a time when vehicle affordability remains a challenge.
The takeaway? Treat 2025 as your test year. Use it to refine your systems, educate your teams, and ensure a smooth transition when the full requirements take effect.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
