The Treasury Department and the IRS have released official guidance regarding the “No Tax on Car Loan Interest” provision, a key feature of the recently passed One, Big, Beautiful Bill.
This new deduction is designed to make vehicle ownership more affordable while supporting domestic manufacturing. Here is a breakdown of what taxpayers and lenders need to know about the proposed regulations.
Key Eligibility: Is Your Car Loan Deductible?
The deduction applies to interest paid on loans for new, made-in-America vehicles purchased for personal use. To qualify, the loan must have been initiated after December 31, 2024.
The new guidance clarifies several critical points for taxpayers:
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Broad Availability: Unlike many other tax breaks, you can claim this deduction whether you take the standard deduction or choose to itemize.
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“Made in America” Standard: The IRS has provided specific rules to determine if a vehicle’s final assembly occurred within the United States.
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Deduction Cap: The annual deduction for interest paid is limited to $10,000 per year.
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Personal Use Only: The regulations outline how to prove a vehicle was purchased for personal rather than business use.
Information for Lenders and Financial Institutions
To ensure taxpayers can accurately claim this benefit, lenders who receive interest payments must comply with new reporting requirements.
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Information Returns: Lenders are required to file reports with the IRS detailing the amount of interest received during the tax year.
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Form Clarification: The proposed regulations specify which lenders must report and what specific data must be included on the forms sent to both the IRS and the borrower.
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2025 Transition: For loans already active in 2025, transition guidance is available to help lenders move into the new reporting system.
Next Steps and Public Comment
The government is seeking feedback on these proposed rules. If you wish to weigh in, the deadline for public comments is February 2, 2026. Submissions can be made via Regulations.gov.
For additional technical details or to see how this affects your specific tax bracket, you can visit the dedicated “One, Big, Beautiful Bill” portal on IRS.gov.