New Car‐Loan Interest Deduction & Reporting Rules: What You Should Know

If you’re thinking of buying or refinancing a car, or are a lender or borrower in that process, it’s time to pay attention. The OBBB introduces a temporary deduction for certain vehicle‑loan interest and a new reporting requirement for lenders. These changes can affect your tax planning, even if you don’t buy until 2025.

What’s New

1. New Deduction for Vehicle Loan Interest

1. • Under the OBBB, individuals may deduct up to $10,000 of interest paid or accrued on a “qualified passenger vehicle” loan during tax years 2025‑2028.
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   • The loan must have been originated after December 31, 2024 and be secured by the vehicle.
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   • The vehicle must satisfy certain criteria:
     1. The vehicle’s original use must begin with the taxpayer (so used vehicles don’t qualify).
     2. It must be manufactured primarily for use on public roads, have at least two wheels, be a car/minivan/van/SUV/pick‑up/motorcycle, and have a gross vehicle weight rating (GVWR) of less than 14,000 lbs.
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   • The deduction phases out for modified adjusted gross income (MAGI) above $100,000 (single) or $200,000 (married filing jointly).
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   • Importantly, the deduction is available even if you do not itemize deductions.

2. New Reporting Requirement for Lenders

1. • The law adds a requirement under IRC Section 6050AA for lenders (or other entities) who receive $600 or more in interest during the calendar year from an individual on a “specified passenger vehicle loan.” On October 16 2025 the IRS released a draft Form “1098‐VLI (Vehicle Loan Interest Statement)” for lenders to report to borrowers and the IRS.
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   • On October 21 2025 the IRS issued Notice 2025‑57 providing transition relief for year 2025: lenders who make a statement to the buyer indicating the total interest received in 2025 (even if they don’t file the formal form 1098‑VLI yet) will avoid penalties.

Why It Matters for You

Whether you’re a high‑income earner, a medical professional, or an e‑commerce entrepreneur in Los Angeles, these changes offer a new tax planning opportunity — but with important caveats.

• Borrowers: If you take out a qualifying vehicle loan starting January 1 2025, you may deduct interest up to $10,000 annually (subject to limits) even if you use the standard deduction. That can reduce your taxable income and make a new vehicle purchase more tax‑efficient.
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• Lenders or Dealers: If you receive $600+ in interest from such vehicle loans you’ll have new reporting duties. Proper systems must be in place to issue borrower statements and, in future years, file with the IRS.
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• Businesses & Professionals: For those who buy cars for personal use (not business use) and meet the rules, this adds a deduction opportunity. But be cautious: used vehicles, leases, non‑personal use vehicles, or vehicles assembled abroad generally won’t qualify.

What You Should Do (Action Steps)

1. If you plan to buy a vehicle in 2025 or later:
   • Confirm the vehicle qualifies (new, U.S.‑assembled, GVWR <14,000 lbs, first use by you).
   • Ensure the loan is originated after December 31, 2024 and is secured by the vehicle.
   • Estimate whether your MAGI will fall below the phase‑out threshold ($100k single; $200k married).
   • Keep interest statements and documentation to support the deduction.
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2. If you are a lender or dealer:
   • Review whether you received $600+ interest from a qualifying vehicle loan.
   • Set up systems to provide borrower statements for 2025 interest (on or before Jan 31 2026) to satisfy the transition relief.
   • Prepare for filing Form 1098‑VLI when finalized by the IRS; update your software and internal processes accordingly.
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3. If you’re a professional or business owner:
   • Incorporate this potential deduction into your year‑end tax planning for 2025.
   • Discuss with your CPA whether a vehicle purchase and qualifying loan might make sense given your income and tax profile.
   • Remember: this deduction is temporary, available only for tax years 2025‑2028.

Example Scenario:

Let’s say you’re a high‑earning professional in Los Angeles and you purchase a new U.S.‑ assembled SUV in February 2025 with a five‑year loan. In 2025 you pay $9,000 in interest. Because the vehicle meets the rules and your MAGI is under $100,000, you’re eligible to deduct the full $9,000 interest — whether or not you itemize deductions. That could reduce your taxable income significantly.

Meanwhile, the lender must provide you with a borrower statement indicating the interest paid. Because it’s year 2025, they may rely on the transition relief if they make a statement available via portal or monthly statement and avoid penalties even if the formal 1098‑VLI isn’t yet required.

Why Velin & Associates, Inc. Can Help

At Velin & Associates, Inc., our Los Angeles CPA team stays on top of evolving tax legislation and guides clients — from creators and online sellers to doctors and dentists — through complex new deductions and reporting rules. If you are considering a vehicle purchase, refinancing a loan, or want to ensure you comply with new lender reporting, we can help you plan, document, and maximize the benefit while avoiding pitfalls.

For more information about our tax planning services, contact us today: visit our website.

Velin & Associates, Inc

8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org

Book a consultation today to review your vehicle‑loan interest deduction eligibility and stay ahead of the reporting requirements.
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