On July 4, 2025, the President signed the One Big Beautiful Bill Act (OBBBA), enacting legislation that adjusts large sections of the Internal Revenue Code and extends previous tax provisions that were set to expire.

Included in the OBBBA is a provision for deductibility of interest paid on loans relating to new vehicle purchases after December 31, 2024. This provision allows taxpayers to deduct interest on vehicles meeting certain criteria listed below.

To qualify for deduction, the IRS states that the interest must be paid on a loan that is:

·         Originated after December 31, 2024,

·         Used to purchase a qualified new vehicle by the taxpayer (used vehicles do not qualify),

·         For a personal use vehicle (business or commercial use does not qualify),

·         Secured by a lien on the vehicle.

The IRS defines a qualified new vehicle as:

·         Car, minivan, van, SUV, truck, or motorcycle with a gross vehicle weight rating of less than 14,000 pounds,

·         Is assembled in the United States,

Deductions may not exceed $10,000, and is available for the 2025-2028 tax years. This deduction begins to phase out once modified AGI exceeds $100,000 for single filers or $200,000 for joint filers.

This provision places additional requirements on financial institutions to assist in the reporting process. Any recipient of passenger vehicle loan interest must provide an informational return to the payer reporting on amounts received. This requirement is stated in Section 6050AA of the Internal Revenue Code. Any institution receiving $600 or more in in interest on a vehicle loan is required to provide this information reporting.

The informational return must include the name of the customer, amounts paid for interest during the tax year, outstanding principal balance of the related loan, origination date of the loan, and relevant information regarding the vehicle serving as collateral (year, make, model, VIN).

This information must be provided to the taxpayer no later than January 31 of the year following receipt of the interest payments. Additionally, provisions for failure to file accurate information by the deadline are included in the OBBBA. These penalties are outlined below.