The Internal Revenue Service is giving auto lenders some breathing room on new reporting rules tied to the “One Big Beautiful Bill Act,” the sweeping tax and spending law signed July 4 by President Donald Trump.
Under the act, also known as H.R. 1, car buyers will be able to deduct up to $10,000 a year in interest paid on new-vehicle loans — provided the vehicle’s final assembly occurred in the United States. But the IRS said Oct. 21 that it will temporarily relax the bill’s reporting requirements for lenders during the 2025 calendar year, describing the move as “transitional.”
Lenders will still have to tell borrowers how much interest they paid in 2025 — a new disclosure requirement under the law — but they won’t need to report that same information to the IRS for now. The agency said both lenders and the government need more time to update systems and forms to handle the new data.
“In addition, the IRS needs additional time to make necessary programming and form updates,” the agency wrote in its notice announcing the rule change.
The new tax break could have wide appeal in an era of record-high vehicle prices and borrowing costs. According to Experian’s State of the Automotive Finance Market Report: Q2 2025, the average new-vehicle loan in the second quarter was $41,983 with a 6.8 percent interest rate, a $749 monthly payment, and a 68.9-month term. Using an Edmunds calculator, Automotive News says that loan would generate roughly $2,660 in deductible interest the first year — a small but welcome tax benefit for many consumers.
The “Beautiful Bill” phases out the full deduction for higher-income households. The $10,000 limit drops by $200 for every $1,000 a taxpayer earns above $100,000 for single filers or $200,000 for joint filers.
The law makes the deduction available whether the filer takes the standard deduction or itemizes, and it applies retroactively to all interest paid in 2025, covering tax years 2025 through 2028.
Originally, the Treasury Department was to create a new form requiring lenders who earned at least $600 in annual auto loan interest to report the borrower’s name, address, interest paid, remaining balance, and vehicle identification number to both the IRS and the customer. Those who failed to file on time would face penalties.
The Oct. 21 IRS guidance suspends most of those requirements for the 2025 tax year. Instead, a lender will satisfy its duty by simply notifying each borrower of the total interest paid by Jan. 31, 2026.
That notification can be delivered in several ways — an online account portal, a regular monthly or annual statement, or any other “similar means designed to provide accurate information,” the IRS said. As long as the information reaches the borrower by the deadline, the lender won’t need to submit a matching report to the agency and won’t face penalties for non-filing.
The agency hasn’t yet said whether those simplified rules will continue in 2026. “The IRS and the Treasury Department understand that financial institutions may need additional time to make the necessary changes to their systems,” the notice said.
For now, both taxpayers and lenders get a one-year grace period to adapt to the new era of deductible auto loan interest — and the government’s latest “beautiful” paperwork challenge.
(Source: Automotive News)
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