Tax Planning
Car Loan Interest Reporting & Deductibility: What Businesses and Individuals Must Know under OBBB
New rules under the One, Big, Beautiful Bill affect how car loan interest is reported and whether it’s deductible—here’s guidance particularly valuable for businesses, gig economy workers, and taxpayers buying vehicles.
By NomadicTax Research Team • 5-8 min read • November 20, 2025
## Background of the Change 📜
As of the One, Big, Beautiful Bill (Public Law 119-21), tax law distinguishes **qualified passenger vehicle loan interest (QPVLI)** for loans incurred after December 31, 2024. Under section 163(h)(4), this interest can be **deductible** for individuals purchasing vehicles for personal use. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill?utm_source=openai)) Also, section 6050AA requires **information reporting** by lenders if interest received is $600 or more in the calendar year. ([eitc.irs.gov](https://www.eitc.irs.gov/newsroom/topics-in-the-news?utm_source=openai))
## What the Transitional Guidance Specifies
Because systems, forms, and operations need updating, the IRS issued **Notice 2025-57** providing relief for calendar year **2025**. Lenders can satisfy reporting by providing a **statement** to individuals showing the total interest paid. They’ll avoid penalties under sections 6721/6722 if they follow this guidance. ([eitc.irs.gov](https://www.eitc.irs.gov/newsroom/topics-in-the-news?utm_source=openai)) The statement can be delivered via:
- Online portals;
- Regular periodic statements;
- Annual statements;
- Other similar methods. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill?utm_source=openai))
## Deductibility for Individuals
If you personally signed a loan for a qualified passenger vehicle for personal use (e.g., a sedan), the interest paid might be deductible under 163(a) if:
- The loan was incurred after **12/31/2024**,
- You aren’t renting out the vehicle or using it in a business,
- The vehicle is secured by a **first lien** and meets criteria for “applicable passenger vehicle” under OBBB. Vehicles over 14,000 lbs, or purchase after that date, might not qualify. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill?utm_source=openai))
## Business Reporting & Lender Responsibilities
- Businesses (dealers, banks) that receive $600 or more in interest in 2025 from individuals must report under §6050AA.
- Under transitional relief, they won’t face penalties if they provide a statement by Jan 31, 2026 showing total interest received in 2025. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill?utm_source=openai))
- For 2026 onward, full reporting obligations will apply as prescribed—be ready to upgrade systems and documents.
## Actionable Advice for Taxpayers
- If purchasing a passenger vehicle in 2025, maintain proof of loan origination, lien, and interest statements you receive.
- Keep copies of statements from lenders—even monthly or annual—showing interest paid.
- If lenders don’t provide proper documentation, request it. You’ll need it to claim deduction properly.
- Business-owners receiving interest from individuals should ensure statements are clear and delivered timely, and that amounts are accurate.
## Example Case
Let’s say **Taylor** buys an eligible sedan (loan incurred Jan 2025) for personal use. Taylor pays $1,200 in interest during 2025. Lender must provide a statement by Jan 31, 2026, indicating $1,200 interest received. Taylor includes that in tax return, deducting under 163(a). Under transitional guidance, lender won’t be penalized if statement is timely and complete. For 2026, similar rules apply but fully enforceable with information returns.
**Final thought:** This change offers a new potential deduction for individuals purchasing vehicles for personal use. It also imposes reporting burdens for lenders and businesses. Everyone should prepare—buyers tracking interest and businesses adjusting reporting.