The U.S. Department of the Treasury and the Internal Revenue Service on December 31 released new guidance clarifying a recently enacted tax deduction allowing certain taxpayers to deduct interest paid on qualifying car loans.
The guidance addresses the “No Tax on Car Loan Interest” provision included in the One, Big, Beautiful Bill, which creates a new deduction for interest paid on vehicle loans incurred after December 31, 2024. The deduction applies to loans used to purchase new, American-made vehicles for personal use and is available to taxpayers who take either the standard deduction or itemize.
Eligibility Rules Clarified
According to Treasury and the IRS, the proposed regulations outline several eligibility requirements for the new deduction, including which vehicles qualify and how eligibility is determined.
The guidance provides rules for determining whether a vehicle’s final assembly occurred in the United States, which vehicle loans qualify for the deduction, and how much loan interest may be deducted. It also clarifies how to determine whether a vehicle is purchased for personal use and identifies which taxpayers may claim the deduction, subject to a $10,000 annual cap.
Requirements for Lenders
The IRS also addressed information-reporting requirements for lenders and other entities that receive interest payments on vehicle loans.
Earlier transition guidance required certain lenders and interest recipients to file information returns reporting vehicle loan interest received during the 2025 tax year. The proposed regulations further clarify which entities must report, when and how reporting must occur, and what information must be included on forms submitted to the IRS and provided to taxpayers.
Treasury and the IRS stated that these information returns are necessary to allow taxpayers to properly claim the new vehicle loan interest deduction.
Public Comment Period Open
Treasury and the IRS are accepting public comments on the proposed regulations through February 2, 2026. Comments may be submitted via Regulations.gov, with additional instructions included in the proposed rulemaking materials.
More information on the provision is available through IRS guidance related to the One, Big, Beautiful Bill.
