The Internal Revenue Service and the Treasury Department published final regulations today implementing a federal income tax deduction of up to $10,000 per year for interest on qualifying passenger vehicle loans, along with new information reporting requirements for lenders that receive $600 or more in interest on those loans.
The deduction was created by the One, Big, Beautiful Bill Act, signed July 4, 2025. It applies to tax years beginning after Dec. 31, 2024, and before Jan. 1, 2029, and covers loans incurred after Dec. 31, 2024. Taxpayers may claim it whether or not they itemize. The deduction phases out by $200 for each $1,000 of modified adjusted gross income above $100,000, or $200,000 for joint filers.
The rules take effect Nov. 9.
To qualify, a vehicle must be new, have undergone final assembly in the United States, weigh less than 14,000 pounds and be purchased primarily for personal use. The loan must be secured by a first lien. Loans on used vehicles, leases and negative equity rolled over from a trade-in do not qualify. Refinanced loans qualify only up to the outstanding balance of the original loan.
A loan can remain secured by a first lien in limited circumstances in which the lien is removed but the borrower remains liable, such as after a repossession or a total loss insurance payout. Late payment charges and default-related charges count as deductible interest if they are characterized as interest for federal tax purposes and reported as such by the lender.
The agencies declined to adopt safe harbors requested by lenders, credit unions and finance companies, which said they do not currently collect data such as vehicle identification numbers, final assembly location or personal use status. Interest recipients must file Form 1098-VLI with the IRS and furnish a statement to the borrower by Jan. 31 of the following year. The statement must carry a legend stating the borrower may not be able to deduct the full amount reported.
The agencies also declined to extend the transition relief in Notice 2025-57, which covered 2025 reporting, or to phase in the requirements. Penalties for failure to file or furnish apply.
Treasury estimates roughly 6 million loans on new U.S.-assembled vehicles are originated annually and that about 36,000 businesses will be subject to the reporting requirements.
