The One Big Beautiful Bill Act (OBBBA) signed into law in July includes dozens of tax provisions, many of which were simply designed to extend existing credits and incentives originally included in the Tax Cuts and Jobs Act of 2017. One of the new tax provisions is a deduction for eligible car loan interest paid. This new incentive allows taxpayers to deduct up to $10,000 in interest paid on a loan used to purchase a new vehicle. Only interest paid on a loan originated after December 31, 2024, used to purchase a new vehicle for personal use only is eligible. Taxpayers must use lender statements showing the total amount of interest paid to claim the deduction.  

Since it is a new deduction, the IRS is required to publish guidance to help lenders and taxpayers comply with reporting and filing requirements. The good news is the agency recently published IRS Notice 2025-57 which provides needed direction. It spells out the steps lenders should follow to report car loan interest received in 2025. To help clients, prospects, and others, Dermody, Burke & Brown CPAs has provided a summary of the key details below. 

What is the Car Loan Interest Deduction?

It is a temporary deduction (2025-2028) that allows taxpayers to deduct interest paid on a loan used to purchase a qualified vehicle. It must be a car, minivan, van, SUV or pick up truck with a gross vehicle weight rating of less than 14,000 pounds, primarily for personal use, and undergone final assembly in the United States. The maximum annual deduction is $10,000 and there is a phase-out for those with an adjusted gross income of over $100,000 ($200,000 for joint filers). 

Reporting Requirements for Lenders

To make the new deduction work, the OBBBA added Section 6050AA to the Internal Revenue Code. It highlights the mandatory information reporting requirements for banks, credit unions and dealerships (essentially any institution that finances new car purchases) to report the amount of interest received each year from borrowers. Currently, if a lender receives more than $600 per calendar year it must be reported to both the IRS and borrower. However, most lenders do not have the time and resources to comply with this requirement before the end of the year.                      

Key Guidance Highlights

In the new guidance, the IRS acknowledges that additional time is necessary for lenders to update systems to comply with new information reporting responsibilities. Concurrently, the agency also needs additional time to update internal systems to be able to accept required reporting information as well. However, since taxpayers need information on how much eligible interest has been paid during the year, it provides alternate ways that lenders can meet reporting requirements. 

The IRS will consider that reporting obligations have been met for 2025 if a statement is made available no later than January 31, 2026, indicating the total amount of interest received. This information should be made available through one of the following options:

• Online portal a buyer can easily access.

• Regular monthly statement.

• Annual statement provided to the buyer.

• Other similar means designed to provide accurate information about the amount of interest received. 

The IRS also points out that no penalties will be imposed for failure to file information returns provided the methods outlined above are used for reporting purposes. 

Impact on Taxpayers

The guidance applies only to how loan interest information is communicated and does not delay the availability of the deduction. Eligible taxpayers that purchased a qualifying vehicle in 2025 will still be able to deduct interest on their tax returns. 

Contact Us

The recently issued guidance provides important directions for lenders on how to report loan interest information. It also provides taxpayers with details on how the interest paid on car loans will be shared. The IRS will be issuing additional guidance in the coming months. If you have questions about the information outlined above, or need assistance with another tax or accounting issue, Dermody, Burke & Brown CPAs can help. For additional information call 315-471-9171 or click here to contact us. We look forward to speaking with you soon.