IRS guidance on transition relief for reporting car loan interest

The IRS has issued transitional guidance under Notice 2025-57, easing the compliance burden for tax year 2025 for lenders navigating new auto loan interest reporting requirements introduced by the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21). With the OBBBA’s new individual deduction for interest on car loans, lenders face complex reporting obligations. The guidance offers penalty relief and allows tax filers such as lenders time to adapt systems and processes before full reporting requirements take effect in 2026.

New deduction: The OBBBA introduced a new deduction for individual taxpayers who finance the purchase of a qualified vehicle. Effective for tax years 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the vehicle is purchased for personal use and meets other eligibility criteria. Lease payments do not qualify.

• Maximum annual deduction is $10,000
• Deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).

Qualified interest: To qualify for the deduction, the interest must be paid on a loan that is:

• Originated after Dec. 31, 2024
• Used to purchase a vehicle originally used by the taxpayer; used vehicles do not qualify
• For a personal use vehicle, not for business or commercial use
• Secured by a first lien on the vehicle

If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.

Qualified vehicle: A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle with a gross vehicle weight rating of less than 14,000 pounds and that has undergone final assembly in the United States.

To determine if a vehicle had final assembly in the U.S., check one of these:

• The information label attached to the vehicle on a dealer's premises
• The vehicle identification number (VIN)
• The National Highway Traffic Safety Administration (NHTSA) VIN Decoder

Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers. The taxpayer must include the vehicle identification number (VIN) of the vehicle on the tax return for any year when the deduction is claimed.

Reporting: Lenders or other recipients of qualified interest aggregating $600 or more for any calendar year on a qualified vehicle must file information returns with the IRS and furnish statements to taxpayers showing the total amount of interest received during the taxable year.

Under OBBBA, lenders or recipients of the vehicle interest must provide the following information to individuals:

1. The name and address of the individual from whom the interest was received
2. The amount of interest received for the calendar year
3. The amount of outstanding principal on the specified passenger vehicle loan as of the beginning of such calendar year
4. The date of origination of such loan
5. The year, make, model and vehicle identification number (VIN) of the applicable passenger vehicle which secures such loan

Additionally, lenders or recipients also must furnish to each individual whose name is required to be included in the return a written statement showing the name, address and phone number of the recipient’s (lenders) contact information. This informational statement must be furnished on or before January 31 of the following calendar year.

IRS Revenue Notice 2025-57 provides transitional relief and guidance for tax year 2025 for interest recipients subject to the new reporting requirements. The Notice explains that for the transition year, tax year 2025, lenders or recipients can meet their reporting obligations and avoid penalties by making such statement available to the individual taxpayer. The statement must be made available on or before Jan. 31, 2026.

This statement can be provided via an online account portal, regular monthly statement, an annual statement or other similar communications.

If you have questions on how the above may impact your tax situation, reach out to your Baker Tilly tax advisor.