In Summary
- One-Year Transition Period: The IRS and Treasury Department, via Notice 2025-57 (released October 21), are providing lenders a one-year transition period to implement the new car loan reporting requirements.
- New Deduction for Individuals: The new requirements are mandated by the One Big Beautiful Bill Act (OBBBA), which allows individuals to deduct interest paid on qualifying car loans starting in 2025.
- Lender Reporting Obligation: Lenders are now required to report the amount of interest they receive from borrowers each year to support the new individual tax deduction
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The IRS and Treasury Department are giving lenders extra time to meet new car loan reporting requirements. Notice 2025-57, released October 21, creates a one-year transition period under the One Big Beautiful Bill Act (OBBBA). The new law lets individuals deduct interest paid on qualifying car loans starting in 2025. To support that deduction, lenders must report how much interest they receive from borrowers each year. The latest guidance gives lenders flexibility for 2025 by allowing them to share this information directly with borrowers instead of filing new IRS forms. To help clients, prospects, and others, Hanson & Co has summarized the key details below.
The New Car Loan Interest Deduction
The OBBBA, passed in July 2025, created a new tax break that lets individuals deduct interest paid on qualifying car loans. This temporary deduction applies to tax years 2025–2028.
This allows individuals to claim a deduction for interest paid on loans used to purchase qualified passenger vehicles. The vehicle must be for personal use and meet the eligibility requirements. Eligibility requirements include that the vehicle must be built in the United States, weigh less than 14,000 pounds, and be a car, SUV, pickup truck, van, or motorcycle.
The deduction is capped at $10,000 per year and phases out for taxpayers with modified adjusted gross income above $100,000 ($200,000 for joint filers). To qualify, the loan must originate after December 31, 2024, and it must begin with the taxpayer. Used vehicles and leased vehicles do not qualify for the deduction.
Reporting Requirements for Lenders
To make this new deduction work, the law also added section 6050AA to the Internal Revenue Code. This section requires lenders, such as banks, credit unions, and dealerships that finance vehicles, to report the amount of interest they receive from individual borrowers each year.
Under current guidance, if a lender receives $600 or more in interest from a borrower in a calendar year, they’ll need to report that amount to both the IRS and the borrower. However, most lenders do not have the systems to implement this change on short notice.
Transitional Guidance for 2025
The Treasury Department and IRS acknowledged that lenders need additional time to build systems and processes to comply with the new law. As a result, the recent guidance providers needed transitional relief for taxpayers to follow.
For interest received during 2025, a lender may satisfy the reporting requirement by making a statement available to each borrower by January 31, 2026, showing the total amount of interest received for the year. Acceptable methods include:
- Posting the information to a borrower’s online account or portal
- Including the total interest in a regular monthly or annual statement
- Providing the data through another comparable means designed to ensure accuracy
If lenders follow these steps, the IRS will not impose penalties for failing to file formal information returns or provide official payee statements for 2025.
What This Means for Lenders and Taxpayers
The transitional guidance applies only to reporting obligations and does not delay the underlying deduction. Those who purchase qualifying vehicles and pay interest in 2025 may still deduct that interest on individual income tax returns.
Financial institutions, dealerships, and other lenders will want to begin tracking car loan interest now to prepare for full compliance in 2026. The IRS is expected to release more information in the coming months.
Contact Us
The OBBBA provides a temporary deduction for car loan interest paid. However, it also creates a new reporting responsibility for lenders. Notice 2025-57 gives lenders a one-year grace period to comply, allowing the deduction to move forward for consumers while providing time for businesses and the IRS to prepare permanent reporting systems. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Hanson & CO can help. For additional information call 303-388-1010 or click here to contact us. We look forward to speaking with you soon.