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Auto lenders will have a new reporting requirement to prepare for in coming years: Form 1098-VLI, Vehicle Loan Interest Statement. This new form is here to help with the new car loan deduction rule created under OBBBA. Under this deduction, a borrower can deduct up to $10,000 of car loan interest per year from their taxable income, for tax years 2025 through 2028.
So, in order to report specified passenger vehicle loan interest, the IRS has introduced the Form 1098-VLI (currently in draft version).
For borrowers, the focus for using this form will be on whether they qualify for the deduction. On the other hand, lenders have a different responsibility altogether- reporting the interest. Lenders need to report the right vehicle loan interest information to the IRS and furnish borrower statements.
Since this form is in the draft phase, auto lenders still have time to prepare for Form 1098-VLI reporting.
The first year of the car loan interest deduction comes with transition relief for 2025 that gives lenders more time to prepare. For that year, lenders can comply with the reporting requirement by making the total interest received available to the borrower through an existing channel such as an online portal, monthly statement, or an annual statement.
When it comes to reporting for 2026, lenders would be expected to follow the more structured reporting process introduced by the IRS. That means lenders should not wait until January to identify reportable loans or collect the required vehicle information. While completing the form itself is relatively straightforward, the biggest challenge lies in ensuring that all underlying loan, borrower, and vehicle data is accurate and complete before reporting begins.
For auto finance companies, banks, credit unions, dealerships with in-house financing, and loan servicers, Form 1098-VLI is not just another year-end form. This new IRS form is still in draft form, but it would be used to report vehicle loan interest received on a qualifying vehicle loan.
As per the IRS draft instructions, lenders need to file Form 1098-VLI when they receive $600 or more in interest in a year on a qualifying specified passenger vehicle loan.
The form requires lenders to identify qualifying loans, separate reportable and nonreportable interest, and capture vehicle-level data to report details such as:
Note: The $600 threshold applies separately to each qualifying vehicle loan, not to a borrower’s total interest across multiple loans.
Vehicle loans that are reportable on Form 1098-VLI must meet these requirements:
The vehicle itself must also meet specific requirements, such as:
Since we know that Form 1098-VLI is used for reporting interest on a vehicle loan that was used to buy a qualifying personal vehicle, you’d think the entire amount would be reportable. However, if the auto loan also includes other financed items, the lender cannot simply report all the interest on the full loan.
For example, if the loan includes money for collision or liability insurance, a trailer, a boat, unrelated services, or negative equity rolled over from a trade-in vehicle loan, it is not counted towards the qualifying vehicle loan amount.
You may think it’s just auto lenders who need to file Form 1098-VLI. However, the filing responsibility for this form extends to a business that receive $600 or more in reportable vehicle loan interest in the course of their trade or business may need to file. That can include:
When a vehicle loan has multiple borrowers, the lender does not have to issue a separate Form 1098-VLI to each co-borrower on the loan.
Instead, under the IRS draft instructions, the interest is reported under one person, the payer of the record or the individual listed in the lender’s records as the principal borrower. If the lender records do not have a principal borrower, the lender has to designate one.
Even when another person makes payments, the interest is reported as received from the payer of record. For example, if a borrower’s parent makes payments on the loan, the interest is still reported under the payer of record.
Auto lenders should capture more than just basic borrower and loan information. The key data fields in Form 1098-VLI include:
Auto lenders also need information regarding the eligibility of the loan, such as the loan qualification status, first-lien status, personal-use classification, and allocation between qualifying and nonqualifying financed amounts. They should also document how the vehicle qualifies for the loan, including VIN validation, final assembly data, dealer documentation, purchase documentation, borrower certifications, internal loan coding, and the date the qualification decision was made.
Though 2025 offers flexibility for Form 1098-VLI filers since it’s a transition period, it still doesn’t remove the need to be prepared for the 2026 filing season.
For 2026 and later reporting, lenders should prepare formal Form 1098-VLI filing and borrower statement delivery. That means year-end reporting teams need to know which loans qualify, which amounts are reportable, and which party is responsible for filing.
Auto lenders should also prepare for any borrower questions. Since this is a new form, many borrowers will be seeing Form 1098-VLI for the first time, and they may assume that the amount shown is automatically deductible. It is the duty of the lender to help their borrowers feel ready for Form 1098-VLI reporting once the filing season begins.
Preparing for Form 1098-VLI reporting should start well before filing season begins. The focus for lenders should be on the data quality. And so, in order to ensure a filing season that doesn’t hit any bumps in the road, a strong readiness action plan is needed. IRS forms and instructions can change, but lenders will still need reliable loan and vehicle data to report correctly.
Note: Form 1098-VLI and its instructions are still in draft form, so the exact form details could change before final release.
Start Borrower Communication Early
Form 1098-VLI is a new form, so the lender is expected to answer any questions the borrower may have such as “Why did I receive the form?” or “Does this mean my full interest is deductible?”
As a lender, you can reduce the number of questions a borrower may have by preparing an FAQ and educational materials that explain the basics of Form 1098-VLI such as, receiving Form 1098-VLI does not guarantee that the borrower qualifies for the deduction.
Form 1098-VLI adds another information reporting obligation for lenders and servicers already managing high-volume tax reporting. Tax1099 can help by handling the reporting workflow. From helping businesses prepare valid vehicle and borrower data to validating, e-filing, and delivering information returns through a single platform.
As Form 1098-VLI reporting becomes part of the annual compliance calendar, lenders should make sure their filing process can handle both volume and accuracy. Tax1099 is here to help auto lenders manage Form 1098-VLI reporting with a purpose-built workflow for vehicle loan interest reporting by offering:
Form 1098-VLI gives auto lenders a new reporting requirement with several moving parts. The form requires reliable and accurate borrower, vehicle, loan, and interest data.
The lenders that prepare early will be in a stronger position when filing season finally arrives. Even though the form is currently in the draft form, lenders should begin preparing now so they are not trying to fix data gaps during filing season. The key is to build the process around clean data, clear ownership, and reliable year-end reporting workflows.
Form 1098-VLI, Vehicle Loan Interest Statement, is an IRS form used to report interest received on qualifying passenger vehicle loans. Auto lenders may need to file the form and furnish a copy to the borrower if they receive $600 or more of qualifying vehicle loan interest during the year.
An auto lender or a business must file Form 1098-VLI if it receives $600 or more of interest during the calendar year on a qualifying specified passenger vehicle loan from an individual, decedent’s estate, or nongrantor trust.
The $600 threshold for Form 1098-VLI applies separately to each qualifying vehicle loan. The threshold is evaluated on a loan-by-loan basis, so a lender is not required to file solely because one borrower paid more than $600 in total interest across multiple loans.
Used vehicles (that don’t meet original-use requirement) do not qualify for Form 1098-VLI reporting. A vehicle must meet the original-use requirements. In plain terms, that means the lender should treat this as a new-vehicle focused reporting requirement, subject to the specific rules in the IRS instructions.
No. Form 1098-VLI applies to qualifying vehicle loans, not lease payments.
No, the IRS draft instructions say debt used to repay negative equity on a trade-in vehicle loan is not included in the qualifying loan amount. Interest tied to that amount should not be reported as vehicle loan interest on Form 1098-VLI.
The lender must allocate the loan and report only the interest tied to the qualifying portion. This can occur when a loan finances a qualifying vehicle along with nonqualifying items or amounts.
If a vehicle loan has multiple borrowers, the lender generally does not issue a separate Form 1098-VLI to each borrower. Instead, the form is prepared for the payer of record. This is generally the principal borrower listed in the lender’s records. If the records do not identify one, the lender must designate one.
Yes, if a servicer or collection agent is the first party to receive reportable interest payments on behalf of another lender, it may be responsible for filing Form 1098-VLI.
Ready to prepare for Form 1098-VLI reporting? Tax1099 can help auto lenders manage vehicle loan interest reporting, e-filing, recipient delivery, and corrections from one platform. Talk to an Expert
Tax1099 can help auto lenders manage vehicle loan interest reporting, e-filing, recipient delivery, and corrections from one platform.