The U.S. Treasury and IRS recently released proposed regulations implementing the One Big Beautiful Bill Act (OBBB) provision commonly known as “No Tax on Car Loan Interest.” These regulations create a temporary deduction for interest paid on qualifying personal-use auto loans and introduce new reporting obligations for lenders. The rules apply to tax years beginning after Dec. 31, 2024, and before Jan. 1, 2029. Taxpayers may rely on the proposed regulations if applied consistently and in full.

Individual auto loan interest deduction (Section 163)

The OBBB temporarily allows individuals to deduct Qualified Passenger Vehicle Loan Interest (QPVLI), even if they do not itemize. The deduction applies to interest on loans used to purchase certain new personal-use vehicles assembled in the United States.

Deduction limits and phaseouts

The maximum annual deduction for QPVLI is $10,000, which is reduced incrementally for taxpayers with modified annual gross income (MAGI) of $100,000, or $200,000 for joint filers.

Requirements for a qualifying vehicle

Interest is deductible only if paid on a loan for an applicable passenger vehicle (APV) meeting all the conditions below:

• The vehicle’s original use begins with the taxpayer;
• The vehicle is manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails);
• The vehicle has at least two wheels;
• The vehicle is a car, minivan, van, sport utility vehicle, pickup truck, or motorcycle;
• The vehicle is treated as a motor vehicle for purposes of title II of the Clean Air Act; and
• The vehicle has a gross vehicle weight rating of less than 14,000 pounds. 

Lease financing does not qualify, meaning amounts paid under a vehicle lease are not QPVLI. To claim the deduction, taxpayers must report the amount of interest paid and the vehicle’s VIN on a timely filed federal tax return.

New reporting requirements for lenders (Section 6050AA)

Lenders receiving $600 or more in car loan interest on a qualifying loan during the year must file a new information return under Section 6050AA. The proposed regulations do not specify the exact form to be used but provide insight regarding the information required to be included. See the proposed regulations for more details.

What does CohnReznick think?

Taxpayers and lenders should begin evaluating whether newly purchased vehicles meet APV qualification criteria. Lenders specifically should begin implementing any necessary changes so that they are in compliance with the new requirements to capture loan-level reporting details. Taxpayers should model out the impact of MAGI-based phaseouts to determine the extent to which they can avail themselves of the new provision to deduct the interest on their qualifying vehicles. And, both taxpayers and lenders alike should retain proper documentation needed for compliance with Section 163 and Section 6050AA.