Proposed Rules on Auto Loan Deduction and Reporting

On Jan. 2, Treasury and the IRS published proposed regulations to implement the temporary auto loan interest deduction under Section 163(h)(4) and related information reporting under Section 6050AA enacted by the One Big Beautiful Bill Act.

Background

Section 163(h)(4) allows a deduction for personal interest that qualifies as qualified passenger vehicle loan interest (QPVLI). QPVLI is interest paid or accrued on indebtedness (including certain refinancing) incurred after Dec. 31, 2024, to purchase an applicable passenger vehicle (APV), secured by a first lien, for personal use. Taxpayers must report the vehicle identification number (VIN) on the return to claim the deduction. QPVLI does not include interest on loans to finance fleet sales, the purchase of a vehicle with a salvage title, the purchase of a vehicle intended to be used for scrap or parts, or lease financing or interest on related-party debt.

An APV is any vehicle whose original use commences with the taxpayer and that meets all of the following:

• Is manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails)
• Has at least 2 wheels
• Is a car, minivan, van, sport utility vehicle, pickup truck, or motorcycle
• Is treated as a motor vehicle for purposes of title II of the Clean Air Act
• Has a gross vehicle weight rating of less than 14,000 pounds
• Final assembly of which occurred within the United States

The term “final assembly” means the process by which a manufacturer produces a vehicle at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a dealer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle.

The deduction is limited to $10,000 per return regardless of filing status, is subject to a modified adjusted gross income phase-out, and is available even if the taxpayer does not itemize deductions.

The deduction is available for tax years beginning after Dec. 31, 2024, and before Jan. 1, 2029, with respect to indebtedness incurred after Dec. 31, 2024.

For the period that QPVLI is deductible, Section 6050AA requires any person who, in the course of such trade or business, receives interest aggregating $600 or more for any calendar year on a specified passenger vehicle loan (SPVL) to file information returns with the IRS and furnish statements to recipients. The information return must include the following information:

• The payer’s name and address
• The amount of SPVL interest received for the calendar year
• The outstanding principal amount on the SPVL as of the beginning of the calendar year
• The loan origination date
• The year, make, model, and VIN of the APV securing the loan (or other description of such vehicle as Treasury prescribes)
• Such other information as Treasury prescribes

Statements must be furnished by Jan. 31 of the year following the year interest is received and must include the name, address, and phone number of a contact for the filer and most of the information filed with the IRS.

Unless reasonable cause exists, penalties apply for failure to comply with Section 6050AA.

Proposed regulations

Highlights of the proposed Section 163(h)(4) regulations include:

• Only individuals, decedents’ estates, and nongrantor trusts are eligible to deduct QPVLI.
• Indebtedness is an SPVL only if it is indebtedness incurred by the taxpayer after Dec. 31, 2024, for the purchase of an APV for personal use and is secured by a first lien on that APV.
• SPVL loan amounts include the purchase price and items customarily financed with the vehicle, such as service plans, extended warranties, sales taxes, and vehicle-related fees. Amounts to pay off a loan on a trade-in, to purchase collision and liability insurance, or to purchase items unrelated to the APV (for example, a boat or trailer) are excluded.
• Original use of a vehicle commences with the first person who takes delivery of the vehicle after the vehicle is sold, registered, or titled. Original use does not commence with a dealer unless the dealer registers or titles the vehicle. Original use commences with the purchaser only if the vehicle is listed as new in the loan documents.
• To determine whether final vehicle assembly is in the U.S., a taxpayer can rely on the vehicle’s plant of manufacture (using the VIN decoder website) or the final assembly point reported on the label affixed to the vehicle.
• Personal use includes use by the taxpayer, their spouse, or a related individual for more than 50% of the time. Personal use is determined at loan origination and taxpayers don’t have to reevaluate use after that time. Proposed rules also coordinate the rules for deduction of QPVLI and interest deductible under other provisions.

Crowe observation

The personal use rule in the proposed regulations is a common-sense approach and is likely to be well-received by taxpayers.

Highlights of proposed Section 6050AA regulations include:

• The meaning of the term SPVL for purposes of Section 6050AA regulations is the same as the meaning of the term for purposes of the Section 163(h)(4) regulations.
• The $600 threshold is determined on an SPVL-by-SPVL basis and filers can report even if the threshold isn’t satisfied.
• Reportable amounts include amounts received during the calendar year and properly accrued by Jan. 15 of the subsequent year.
• Generally, the person collecting interest on behalf of the lender of record (the person who has the right to interest under the loan documents) is required to report the interest received.
• Returns are due on Feb. 28 of the year following the year the interest is received (or March 31 if filed electronically). Form 1098-VLI, “Vehicle Loan Interest Statement,” currently released only in draft, will be used for this purpose.
• Statements must include a legend with language explaining that all of the interest reported might not be deductible.

Looking ahead

While the proposed regulations provide much-needed guidance, determining eligibility for the deduction in 2025 is likely to be confusing for most taxpayers. Additionally, even though Notice 2025-57 allows interest recipients to meet 2025 reporting obligations by providing payers with access to information about SPVL interest paid, the rules for providing such access are not entirely clear.

Given these complexities, taxpayers should work closely with their tax advisers regarding the rules for 2025 and how to comply with reporting obligations for 2026 and beyond.