Industry win: IRS provides guidance on H.R. 1 auto loan interest

Following America’s Credit Unions and leagues’ call for clarity, the Internal Revenue Service (IRS) will publish a proposed rule on auto loan interest deduction provisions in H.R. 1, the budget reconciliation bill passed earlier this year. H.R. 1 creates a temporary federal income tax deduction for interest on certain passenger vehicle loans for tax years 2025–2028 and establishes new reporting requirements for credit unions. The proposal clarifies who must report deductible auto-loan interest and reduces duplicate reporting in indirect/assigned-loan structures. 

Both of these points were raised in America’s Credit Unions’ letter sent earlier this month. The proposal also responds to requests made by America’s Credit Unions and leagues by:

• Providing rules for assignees in indirect lending on how to determine and report required information;
• Clarifying refinance treatment by capping deductible interest to the outstanding principal at refinance;
• Specifying reporting timing/mechanics (interest for the year and principal-balance snapshots);
• Setting allocation rules separating qualifying vehicle-related amounts from non-qualifying amounts (including negative equity). 

Comments on the proposal are due Feb. 2. America's Credit Unions will send a Regulatory Alert to credit unions to seek feedback and help inform official comments on the proposal. In addition, the IRS will host a public hearing on the proposal Feb. 24.
America’s Credit Unions has also called for clarity on remittance tax portions of H.R. 1, calling for practical guidance, particularly in situations when a member deposits cash and then uses the same account to send a remittance. 

America’s Credit Unions’ member-only Compliance Library has several resources available on H.R. 1, including a recorded webinar and FAQs on the auto loan interest deduction. The FAQs will be updated with details on this proposal.