Since the Tax Reform Act of 1986, personal interest, including interest paid on car loans, has not been deductible. However, the recently enacted One Big Beautiful Bill Act (“OBBBA”) introduced several new tax incentives, including a temporary below-the-line deduction for up to $10,000 of interest paid per year on qualified new-vehicle loans.
With these new tax breaks come a variety of new IRS tax forms and reporting rules. Here is everything you need to know about the vehicle loan interest reporting and deduction.
Deduction Limitations
There are several important limitations to keep in mind:
- The deduction begins to phase out at $100,000 for single filers, $200,000 for joint filers.
- The deduction only applies to interest that was incurred and actually paid by the borrower. Any amounts reimbursed by another person or the lender are not eligible.
Vehicle and Loan Requirements
To qualify for the deduction the vehicle must meet certain criteria:
- The loan must originate after December 31, 2024.
- The loan must be used to purchase a new vehicle.
- The vehicle must be a “qualified passenger vehicle,” defined generally as a car, minivan, van, SUV, pick-up truck, or motorcycle, with gross vehicle weight rating (GVWR) under 14,000 pounds, with final assembly in the United States.
- The loan must be secured by a lien on the vehicle.
- The vehicle must be for personal use (not business).
Timing and Documentation
For tax year 2025 returns (filed in 2026), borrowers should evaluate whether they qualify, maintain proper documentation, and manage expectations accordingly – since final regulations may not yet be released. By tax year 2026 and beyond, the reporting and deduction process is expected to be more formalized.
Form 1098-VLI
The IRS recently released a draft of the new form 1098-VLI, which lenders will use to report $600 or more in interest received from a borrower. Form 1098-VLI is an information-reporting form that lenders will furnish to borrowers (and file with the IRS) showing:
- The amount of interest received in a calendar year on certain “specified passenger vehicle loans” (SPVLs), and
- Additional identifying information such as loan origination date, vehicle year, make, model, VIN, and refund of overpaid interest.
Importantly, a borrower’s right to deduct interest does not depend on receiving a Form 1098-VLI. Because the form is currently a draft (issued Oct 16 2025) the IRS is treating 2025 as a transition year.
For the 2025 reporting year, a lender’s obligation may be satisfied if they simply provide a statement showing the total interest received on the vehicle loan by Jan 31, 2026. Additionally, if the borrow paid less than $600 and Form 1098-VLI is not required, a monthly or annual statement showing the amount of interest paid will still be acceptable documentation provided the vehicle otherwise qualifies.
Key Takeaway
The new vehicle loan interest deduction under the (OBBBA) marks a rare opportunity for taxpayers to claim personal-use interest as a below-the-line deduction (even if you don’t itemize). However, eligibility depends on meeting strict criteria regarding the loan, the vehicle, and income thresholds.
Borrowers should keep detailed records of interest paid, retain year-end lender statements or Form 1098-VLI once available, and confirm their eligibility when filing their 2025 return. Because IRS guidance is still evolving, it’s best to consult a qualified tax professional to ensure compliance and maximize your deduction under the new rules.