IRS Issues Proposed Rules for New Car Loan Interest Deduction
The Department of the Treasury and the IRS have issued proposed regulations tied to a provision of the One, Big, Beautiful Bill (OBBB) that could benefit taxpayers planning to purchase a new vehicle in 2025. These draft rules outline how the new car loan interest deduction would work and who may qualify.
The provision allows a deduction for interest paid on loans used to purchase new, personal-use vehicles, as long as those vehicles are assembled in the United States. The deduction applies to loans originated after December 31, 2024, and can be taken whether or not you itemize deductions.
The proposed regulations clarify:
- How to determine whether a vehicle qualifies, including U.S. final assembly requirements
- How to identify eligible loans and calculate deductible interest
- What defines “personal use” of a vehicle
- Who can take the deduction, and how the $10,000 annual cap applies
Lender Reporting & Public Comment
In addition to helping taxpayers understand eligibility, the regulations also address reporting obligations for lenders. Starting in 2025, lenders receiving interest payments on qualifying vehicle loans must file specific information returns with the IRS. The guidance explains which parties must report, how to report, and what information must be included.
The IRS and Treasury are inviting public comment on these proposed rules through February 2, 2026. Feedback can be submitted via Regulations.gov, as outlined in the proposed guidance.
If finalized, these rules will shape how this new deduction is applied beginning in 2025. Until then, they remain in proposed form and subject to revision.
Have questions about how the new car loan interest deduction could affect you or your business? The proposed rules are complex, and planning ahead can make a real difference. Contact us to discuss your situation with our experienced tax advisors and ensure you’re prepared for these changes.
