IRS offers relief on car loan interest reporting under H.R. 1

Transition relief provided by the IRS on Tuesday in Notice 2025-57 makes it easier for certain lenders to report car loan interest for vehicles that meet standards set in the new tax law and also suspends penalties for those lenders for 2025.

The IRS said in the notice that it is providing the relief for one year to help any recipients who need more time to change their systems and because the IRS needs time to change its programming and forms to implement Sec. 6050AA.

H.R. 1 and car loans

H.R. 1, P.L. 119-21, commonly known as the One Big Beautiful Bill Act, excludes qualified passenger vehicle loan interest from the definition of personal interest in Sec. 163(h) for the years 2025 through 2028. Among other restrictions, applicable passenger vehicles must have had their final assembly in the United States.

The exclusion is capped at $10,000 per year and phases out for taxpayers with modified adjusted gross income of more than $100,000 ($200,000 for married taxpayers filing jointly).

Transition relief

The guidance affects lenders and other interest recipients required to file information returns with the IRS and provide statements to borrowers showing the total amount of interest received on qualified passenger vehicle loans and other information related to the loan. That information required under H.R. 1 includes the amount of outstanding principal on the loan as of the beginning of the calendar year and the origination date of the loan.

Under the guidance provided Tuesday, the IRS will consider that lenders have met their reporting obligations if they make a statement available to the buyer indicating the total amount of interest received.

They can do this in several ways, such as on an online portal; in a regular monthly statement; on an annual statement provided to the buyer; or by any other means that provides accurate information to the buyer.

Also, the IRS will not impose penalties on lenders for a failure to file information returns and provide payee statements if they meet these requirements.

Qualifying vehicles

A qualified passenger vehicle is a car, minivan, van, SUV, pickup 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.

The interest deduction in H.R. 1 allows certain taxpayers to deduct interest paid on a qualified passenger vehicle loan during tax years 2025 through 2028, provided the loan is incurred after Dec. 31, 2024, and the vehicle is purchased for personal use.

Businesses that receive from any individual interest of $600 or more for any calendar year on a qualified passenger vehicle loan must comply with the new Sec. 6050AA reporting requirements.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.