Car Loan Interest Deduction Under One Big Beautiful Bill Act (OBBBA)

The One Big Beautiful Bill Act (Public Law 119-21) became law on July 4, 2025. One of the significant changes that it created was a temporary deduction for certain passenger-vehicle loan interest (Sec. 70203) and a new lender reporting rule (new IRC §6050AA).

Summary

We anticipate that the IRS will soon announce a form related to the new auto loan interest deduction created through the OBBBA. While the form has yet to be released, the reporting requirements will be retroactive for qualifying automobile loans issued beginning on January 1, 2025. Notably, beginning in tax year 2025, the auto loan interest deduction will require lenders to report annual interest payments of $600 or more on all qualified loans like the 1098 mortgage interest statement.

What is the Car Loan Interest Tax Deduction under OBBBA?

Buying a new car is a big purchase for most, so it’s no surprise that many take out a loan to help pay for their new rides. The Car Loan Interest Tax Deduction under OBBBA allows any eligible taxpayer to deduct upto $10,000 in interest paid. This applies to qualifying vehicle loans (new vehicle) purchased from January 1, 2025 to December 31, 2028. However, it is valid only for the vehicles that meet certain specific criteria.

Note: The deduction is available for both cases- whether you claim itemized deductions or the standard deduction.

Auto Loan Deduction Criteria

Eligible Period: Year 2025 to 2028

Cap: Up to $10,000 of annual interest; phase-out begins at $100k/$200k MAGI (single/joint).

Loan criteria:

• Vehicle purchased after December 31, 2024
• Secured by a lien on the vehicle (refinanced qualifying loans generally remain eligible)
• It is valid for personal use only (not business/commercial).

Vehicle criteria:

• Passenger vehicle (< 14,000 lbs GVWR)
• The final assembly should happen in the United States.
• Original use with the taxpayer (i.e., used vehicles don’t qualify)
• Return requirements: Borrower must list the VIN to claim the deduction.

Note: Vehicles under leases are not eligible for the auto loan deduction.

New Reporting Rules for Form 1098

Existing 1098 forms themselves will not change for the tax year 2025 under the OBBBA. Beginning in tax year 2026, private mortgage insurance premiums (PMI) will be deductible as qualified residential interest. Therefore, PMI (reported on Form 1098 Box 5) will be relevant to some taxpayers. Expect additional IRS guidance on how the reporting requirements for PMI will be handled for tax years 2026 and beyond.

Businesses receiving interest payments of $600 or more from any individual in a calendar year are now required to track and report detailed information regarding both the loan and the applicable interest received. These requirements apply to loans incurred after December 31, 2024. The new requirements apply to interest payments received in calendar year 2025, therefore, the first returns would presumably be due early in 2026. It is possible that the IRS will provide transition relief given the mid-year adoption.

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