IRS Provides Guidance to Banks on Vehicle Interest Reporting

The IRS issued guidance for lenders on the reporting requirements for interest received on qualified consumer vehicle loans for the 2025 tax year, following a provision from the One Big Beautiful Bill (OBBB) requiring vehicle lenders to file an IRS information return. Lenders must also provide a report to customers who paid $600 or more in interest during the year of the qualified consumer vehicle loan.

The IRS has released a draft of a new 1098 form (1098-VLI), but that form has not yet been finalized.

For the 2025 tax year, transitional relief is being provided for reporting procedures to borrowers, as the new IRS reporting form may not be ready for use by the reporting deadline of January 31, 2026.

The Impact of the One Big Beautiful Bill

The OBBB provides a new tax deduction for qualified passenger vehicle loan interest. The interest on qualified loans is tax deductible, up to a limit of $10,000 per year. The deduction is phased out for higher income taxpayers. This deduction is available for the 2025 to 2028 tax years.

For the interest to be tax deductible, it must meet the following criteria:

• Loan originated after December 31, 2024
• Loans are secured by a first lien on a qualified vehicle
• The following are considered qualified vehicles:
  • Car
  • Minivan
  • Van
  • SUV
  • Pickup truck
  • Motorcycle

All eligible vehicles must have a gross vehicle weight rating of less than 14,000 pounds, and final assembly must be completed within the United States. The VIN indicates where final assembly occurred and must be reported on the taxpayer’s tax return to claim the deduction.

How to Report the Deduction

The OBBB requires the IRS to provide a new information reporting form reporting interest paid during a year of $600 or more, to both the IRS and to the borrower.

Transitional relief was provided in Notice 2025-57. For the 2025 tax year, lenders can satisfy the interest reporting requirements without penalty from the IRS. However, they must provide borrowers with a statement indicating the total interest paid on the loan during 2025, specifically mentioning:

• An online account portal
• Regular monthly statement
• Annual statement provided to the borrower
• Other similar means

Any of the acceptable means of reporting the 2025 interest is due to the borrower by January 31, 2026.

Our team of banking and tax experts can help you make sense of the OBBB’s new provisions on your company.