IRS Provides Transitional Guidance on H.R. 1’s Vehicle Loan Interest Deduction
As discussed in this FAQ, H.R. 1, the Budget Reconciliation Bill (the "Bill") was signed into law on July 4, 2025. The Bill established a $10,000 temporary tax deduction for passenger vehicle loan interest and new reporting requirements for lenders who receive more than $600 or more in interest on certain qualifying vehicle loans.
Specifically, for lenders, the Bill adds a new provision to the Internal Revenue Code (IRC), section 6050AA, to require lenders, including credit unions, that receive $600 or more in interest on a "specified passenger vehicle loan" to provide a form or information return, similar to a 1099 or 1098 form, to the IRS reporting the interest collected. In addition, the credit union will be required to furnish a written statement to the vehicle owner (borrower).
A "specified passenger vehicle loan" is defined as the indebtedness described in IRC section 163(h)(4)(B). That section defines "qualified passenger vehicle loan interest" to mean any interest paid or accrued during the taxable year on indebtedness incurred after December 31, 2024 for the purchase of, and that is secured by a first lien on, an applicable passenger vehicle for personal use.
So, to summarize, credit unions are required to report interest for specified loans that were made starting January 1st of this year. Two big issues here: 1) credit unions have been making these covered loans without knowledge of the requirement and 2) the IRS had not issued any relevant forms or guidance. Well, fear not. On Tuesday, October 21st, the IRS published transitional guidance on auto loan interest reporting.
The transitional guidance states that since both the IRS and lenders need more time, a lender may "satisfy the reporting obligations under section 6050AA for interest received in calendar year 2025 on a specified passenger vehicle loan by making a statement available to the individual on or before January 31, 2026, indicating the total amount of interest received in calendar year 2025 on a specified passenger vehicle loan."
The transitional guidance provides several options for providing the statement to borrowers, such as:
- Through an online account portal that is easily accessible
- A regular monthly statement
- An annual statement
- Or by other similar means designed to provide accurate information on the 2025 interest received on a specified passenger vehicle loan.
The IRS notes that it will not impose penalties on lenders who satisfy the reporting requirements using the methods described in the transitional guidance.
One key item to keep in mind is that while the transitional guidance does not provide guidance on reporting interest to the IRS, just to the individual borrower/s, it does state that following the transitional guidance satisfies a lender's reporting requirements. This seems to indicate that the IRS does not want an influx of annual statements from lenders but would rather prefer lenders use an official form whenever it is created and published for use.
Of note, the transitional guidance requires a statement be provided tallying the amount of 2025 interest received on a specified passenger vehicle loan. Unfortunately, both the transitional guidance and text of the statute are not clear as to whether a credit union is required to determine whether a loan is a specified passenger vehicle loan. Anecdotally, America's Credit Unions has heard from credit unions that some vendors are telling credit unions that they are required to determine whether a vehicle qualifies for the deduction. Ultimately, on these issues of tax law, credit unions should speak to a qualified tax professional or attorney.
