IRS finalizes $10,000 car loan interest deduction rules

The Internal Revenue Service (IRS) and the Treasury Department have issued final regulations establishing a Federal income tax deduction of up to $10,000 of qualified passenger vehicle loan interest (QPVLI), together with new information-reporting obligations for lenders. The rules, published as TD 10054 in the Federal Register of Tuesday, September 8, 2026 (Vol. 91, No. 172, p. 57214), take effect on November 9, 2026.

The final regulations, identified as FR Doc 2026-18219 (RIN 1545-BR75, 26 CFR Parts 1 and 301), implement section 70203 of the One, Big, Beautiful Bill Act (OBBBA), Public Law 119-21 (139 Stat. 72, 176-179), signed into law on July 4, 2025. They apply to taxable years beginning after December 31, 2024, and before January 1, 2029, and to indebtedness incurred after December 31, 2024.

The deduction and its limits

Under new section 163(h)(4), personal interest no longer includes QPVLI, so the deduction is available to taxpayers who itemize and to those who claim the standard deduction. The $10,000 annual cap applies per Federal tax return regardless of filing status, and taxpayers with multiple loans may aggregate their interest before applying the limit.

The deduction is phased out for higher earners: it is reduced by $200 for each $1,000 (or portion) by which modified adjusted gross income (MAGI) exceeds $100,000 ($200,000 for married couples filing jointly). To qualify, the vehicle must be an “applicable passenger vehicle” (APV) whose original use commences with the taxpayer and whose final assembly occurred in the United States.

New reporting for lenders

The regulations add section 6050AA, requiring any person engaged in a trade or business who receives $600 or more of interest in a calendar year on a specified passenger vehicle loan (SPVL) to file an information return with the IRS and furnish a statement to the payor of record. Reporting is done on Form 1098-VLI, Vehicle Loan Interest, which must be filed electronically and include:

• the name, address, and taxpayer identification number of the payor of record and the interest recipient;
• the amount of interest received and the outstanding principal at the start of the year;
• the loan origination date and the date the SPVL was acquired;
• the year, make, model, and vehicle identification number (VIN) of the APV securing the loan.

The statement to the payor of record must carry a legend warning that the taxpayer may be unable to deduct the full amount reported, that MAGI-based limitations may apply, and that penalties may be imposed for overstating the deduction. Failures to file or furnish statements are subject to penalties under sections 6721 and 6722, with reasonable-cause relief available.

Process and impact

The final rules follow a notice of proposed rulemaking published on January 2, 2026 (REG-113515-25, 91 FR 67), a public hearing held on February 24, 2026, and 63 public comments. The IRS also released transitional guidance in Notice 2025-57, which remains available for interest received in calendar year 2025. The Treasury Department and the IRS estimate that roughly 6 million loans originated on new U.S.-assembled vehicles in 2024.

The regulations are intended to ease the financial burden of car ownership and support domestic manufacturing, since only vehicles with final assembly in the United States qualify. By providing the information taxpayers need to claim the deduction, the rules are expected to reduce inadvertent errors on returns and give lenders certainty about their new reporting duties.

Source: Federal Register, Vol. 91, No. 172, September 8, 2026, Rules and Regulations, p. 57214 (official reference: TD 10054, FR Doc 2026-18219, RIN 1545-BR75).