The IRS issued transitional guidance on Oct. 21 that provides penalty relief to certain lenders on the new information reporting requirements for car loan interest received in 2025 under the new Trump tax law.
Notice 2025-57 provides transitional relief for 2025 to lenders and other interest recipients who are required to file information returns with the IRS and provide statements to borrowers showing the total amount of interest received on qualified passenger vehicle loans and other information related to the loan.
This new tax benefit under July’s One Big Beautiful Bill Act allows certain taxpayers to deduct interest paid on a qualified passenger vehicle loan during a taxable year beginning after Dec. 31, 2024, and before Jan. 1, 2029, provided the loan is incurred after Dec. 31, 2024, and the vehicle is purchased for personal use.
Individuals earning less than $100,000 in modified adjusted gross income and couples earning less than $200,000 can get the full benefit of the tax break, but it gradually phases out for higher-income filers.
Businesses that receive from any individual interest of $600 or more for any calendar year on a qualified passenger vehicle loan must comply with the new reporting requirements under Section 6050AA of the Internal Revenue Code, according to the IRS. Statistics show that sales of all new passenger cars in the U.S. totaled approximately 2.4 million last year and more than 80% of those car sales were financed, often at the dealership, the agency added.
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For anyone under the income cap looking to use the new deduction, the following basic requirements apply:
- Purchases made in 2025 (including before July 4), 2026, 2027, and 2028;
- No leases;
- Final vehicle assembly completed in the U.S.;
- Vehicle is either a car, minivan, van, sport utility vehicle, pickup truck, or motorcycle made for use on public streets;
- Gross vehicle weight rating of less than 14,000 pounds;
- Vehicle is new and for personal use; and
- Loan made by unrelated parties (no family loans).
The policy allows annual deductions of up to $10,000, though few filers are likely to claim deductions that high.
Under Tuesday’s guidance, the IRS will consider that lenders have met their 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.
In addition, the IRS won’t impose penalties under sections 6721 and 6722 of the tax code on lenders for failing to file information returns and provide payee statements if they satisfy their reporting obligations under Section 6050AA for calendar year 2025 as described in the guidance.
In Notice 2025-57, the IRS says:
The Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) understand that recipients may need additional time to make the necessary changes to their systems to comply with their new information reporting responsibilities under section 6050AA. In addition, the IRS needs additional time to make necessary programming and form updates to implement section 6050AA. The Treasury Department and the IRS are also aware that individuals need information on how much interest they paid or accrued in 2025 in order to determine the amount of interest that may be deductible as QPVLI [qualified passenger vehicle loan interest] on their individual income tax returns for the 2025 taxable year.
Accordingly, the Treasury Department and the IRS are providing transitional guidance with respect to the reporting obligations under section 6050AA with regard to interest that a recipient received on a specified passenger vehicle loan in calendar year 2025.
As described in this transitional guidance, the recipient may satisfy the reporting obligations under section 6050AA for interest received in calendar year 2025 on a specified passenger vehicle loan by making a statement available to the individual on or before January 31, 2026, indicating the total amount of interest received in calendar year 2025 on a specified passenger vehicle loan.
According to the IRS, lenders can meet their reporting requirements by making this total amount of interest received in calendar year 2025 available:
- On an online portal that the buyer can easily access;
- In a regular monthly statement;
- On an annual statement that is provided to the buyer; or
- By other similar means designed to provide accurate information to the buyer regarding interest received.
The average interest rate on auto loans for borrowers with good to excellent credit (670 to 850 credit score) ranged from 5.18% to 6.70% in the first quarter of 2025, according to NerdWallet. For borrowers with nonprime or subprime credit (501-660), rates typically fall between 9.83% and 13.22%.
Those rates could rise and fall depending on the length of a loan, with shorter loans drawing lower rates and longer ones drawing higher ones. The most common auto loans are between five and seven years.
Photo credit: HABesen/iStock
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