On the Dash:
- Lenders do not need to report 2025 auto loan interest directly to the IRS if borrowers receive a statement by Jan. 31, 2026.
- The deduction allows consumers to claim up to $10,000 annually on U.S.-assembled vehicle loans, retroactive to 2025.
- Transitional relief protects lenders from penalties and reduces administrative burden while IRS systems are updated for 2026 reporting.
The IRS on October 21 issued transitional relief for lenders required to report auto loan interest under the One Big Beautiful Bill Act (OBBBA), easing compliance for 2025. The move eliminates the obligation for lenders to file information directly with the IRS, provided borrowers receive a statement showing total 2025 interest by January 31, 2026.
The legislation allows consumers to deduct up to $10,000 in interest annually on new vehicles with final assembly in the U.S., applicable from 2025 through 2028. Income limits apply, and the deduction is available whether taxpayers itemize or take the standard deduction. The transitional relief was introduced to accommodate both lenders and the IRS, which noted that additional time is needed to update forms and systems.
For 2025, lenders can provide interest statements via online portals, monthly statements, annual statements, or other accessible means. Meeting this requirement protects lenders from penalties for failing to report to the IRS or provide timely statements to borrowers. The IRS released a draft Form 1098-VLI for 2026 reporting, but no direct IRS filing is required for 2025.
The auto loan interest deduction reflects a significant benefit for vehicle buyers. Experian data reveals the average new-vehicle loan in the second quarter was $41,983 at 6.8% interest, equating to roughly $2,660 in first-year interest payments. Without this transitional relief, lenders would have been required to collect detailed borrower and loan information, including name, address, interest paid, principal, and vehicle identification, and submit it to the IRS.
President Donald Trump signed H.R. 1 into law on July 4, making the deduction retroactive for 2025. The legislation represents a key element of the administration’s effort to encourage U.S.-assembled vehicle purchases, while minimizing administrative hurdles for financial institutions during the first year of implementation.
The IRS’s transitional guidance provides clarity to lenders and ensures borrowers are informed of the deduction without imposing immediate reporting burdens, enabling a smoother rollout of the new tax benefit.
