Article
IRS guidance on transition relief for reporting car loan interest
Dec. 11, 2025 · Authored by Emina Cresswell
The IRS has issued transitional guidance under Notice 2025-57, easing the compliance burden for tax year 2025 for lenders navigating new auto loan interest reporting requirements introduced by the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). With the OBBBA’s new individual deduction for interest on car loans, lenders face complex reporting obligations. The guidance offers penalty relief and allows tax filers such as lenders time to adapt systems and processes before full reporting requirements take effect in 2026.
New deduction: The OBBBA introduced a new deduction for individual taxpayers who finance the purchase of a qualified vehicle. Effective for tax years 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the vehicle is purchased for personal use and meets other eligibility criteria. Lease payments do not qualify.
- Maximum annual deduction is $10,000
- Deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).
Qualified interest: To qualify for the deduction, the interest must be paid on a loan that is:
- Originated after Dec. 31, 2024
- Used to purchase a vehicle originally used by the taxpayer; used vehicles do not qualify
- For a personal use vehicle, not for business or commercial use
- Secured by a first lien on the vehicle
If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.
Qualified vehicle: A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle with a gross vehicle weight rating of less than 14,000 pounds and that has undergone final assembly in the United States.
Related sections
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.