The Internal Revenue Service has given auto lenders long-awaited direction on how to handle a new tax deduction for car loan interest signed into law by President Trump in July.
The details: The IRS’ guidance for the measure, released Tuesday, clarifies key information lenders must provide to consumers under the new rule, which allows borrowers to claim up to $10,000 in car loan interest for a new vehicle with final assembly in the U.S. beginning with 2025 tax returns.
Lenders must meet reporting obligations for interest received on a qualified passenger car loan in 2025 if they make a statement available to the buyer indicating the total amount of interest received.
The IRS, however, is giving lenders some flexibility to avoid penalties tied to reporting requirements under the deduction.
Why it matters: The IRS guidance provides long-awaited clarity for auto lenders on how to implement the new car loan interest deduction—reducing confusion for both lenders and borrowers ahead of the 2025 tax season. For automakers and dealers, it could help spur affordability and sales by making U.S.-assembled models more financially appealing to buyers.
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Digging deeper: The IRS outlines four different methods lenders can use to provide borrowers with their car loan interest information so they can claim the deduction, which was enacted as part of the “One, Big, Beautiful Bill Act.”
An online portal that the buyer can easily access.
Including the information in regular monthly statements.
Providing the buyer with an annual statement.
Other “similar means” that deliver “accurate information.”
Borrowers who take out a car loan in 2025 will need to file a new Schedule 1-A with their 2025 federal income tax returns—submitted next year—to claim the deduction.
Bottom line: For dealers and finance arms, the deduction could boost affordability and sales momentum by making U.S.-built vehicles more attractive if it holds. But it also introduces new administrative and compliance challenges for lenders, who must accurately track and report qualifying loan interest under evolving IRS requirements.
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