January 12, 2026
The Treasury Department and the IRS have released proposed regulations that explain how a new federal income tax deduction for car loan interest will work and how lenders will be expected to report that interest. The proposal would allow eligible taxpayers to deduct up to $10,000 of qualified passenger vehicle loan interest each year and would create information reporting rules for businesses that receive at least $600 of interest in a calendar year on specified passenger vehicle loans from individuals.
The guidance is aimed at two audiences: 1) individual taxpayers who want to claim the deduction, and 2) lenders and auto dealerships who need to follow the new reporting requirements. Public comments are open until February 2, 2026. To help clients, prospects, and others, Wilson Lewis has summarized the key details below.
The car loan interest deduction was created under the One Big Beautiful Bill Act (OBBBA) as a way to lower borrowing costs for individuals who purchase new vehicles assembled in the United States. Historically, interest on personal car loans has not been deductible at the federal level. This provision temporarily changes that rule, and it applies to loans incurred after December 31, 2024. The deduction is available for tax years 2025 through 2028.
In October 2025, the IRS issued Notice 2025-57, which provides transitional relief for the first year of the provision. Under that notice, taxpayers may claim the deduction for 2025, but lenders are not yet required to file formal information returns for that year if they make a statement available to each borrower by January 31, 2026, showing the total annual interest received.
The proposed regulations (REG-113515-25) further explain who and what qualifies for the deduction; it also sets formal reporting rules for lenders starting with interest received in 2026.
The proposed regulations confirm the deduction is intended for individual taxpayers who take out loans to purchase qualifying passenger vehicles for personal use. The loan must be incurred by the taxpayer, and the taxpayer must expect to use the vehicle more than 50% of the time for personal rather than business use.
The deduction is capped at $10,000 per year and phases out for taxpayers with modified adjusted gross income (MAGI) above $100,000, or $200,000 for married taxpayers filing jointly. Taxpayers who take the standard deduction as well as itemizers can benefit.
The deduction applies to interest on loans used to buy new passenger vehicles assembled in the United States. To qualify, the vehicle must be new when the taxpayer buys it, and final assembly must have taken place in a U.S. plant. This information can be verified by entering the vehicle identification number (VIN) into the National Highway Traffic Safety Administration’s VIN Decoder.
The new guidance states that taxpayers will receive a statement provided by the lender with the amount of interest paid or accrued in a given year. That statement is meant to verify the amount of interest eligible for the deduction.
For lenders and auto dealerships that earn interest on passenger vehicle loans, the proposed regulations build on the IRS’s earlier transitional relief. For 2025, lenders do not have to file a new information return if they give each borrower a clear statement showing the total interest paid for the year. The statement must be accurate and provided by January 31, 2026. If lenders do this, the IRS has indicated it will not impose any penalties.
For interest received in 2026 and later, any business that receives at least $600 of interest in a calendar year from an individual on a qualifying passenger vehicle loan must send the borrower a written statement by January 31 of the following year. They must also file an information return with the IRS by February 28, or March 31 if filed electronically. Those filings report the amount of interest received and key information related to the loan and the vehicle. The proposal also describes penalties if required filings or statements are late or missing.
Dealerships and other lenders will want to prepare for compliance for 2026. They will need to confirm that systems can capture, and report all required data. There may be a need to work with software providers to build and test new year-end reports. Staff training will also be important so employees understand the new forms and can answer basic questions from potential customers.
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The proposed regulations provide important information for both vehicle buyers and lenders. Those considering a new vehicle will want to review the requirements carefully before making a purchase, and lenders will want to stay up to date on any additional changes to the guidance. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewi can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.