NEWS: You may have heard of the of the One Big Beautiful Bill, signed into law on July 4, 2025. The bill introduces a new deduction for interest paid on auto loans, allowing taxpayers to write off a portion of their car loan interest, subject to income limits and strict rules about which cars qualify. The new law also establishes a new reporting requirement for businesses, including credit unions, receiving $600 or more in interest on qualifying vehicle loans.
The interest deduction and reporting requirements apply to any applicable loan made after December 31, 2024. So, the changes will apply to loans taken out in 2025 and after, but just for three years, through 2028. Interest paid on refinanced loans is eligible, but only up to the amount still owed at the time of refinancing. The new loan must also be secured by a first lien on the same vehicle. Only passenger vehicles for personal use are eligible. ATVs, campers, and other vehicles not for use on public roads and highways, are excluded.
Importantly, only new vehicles that had final assembly in the United States are eligible. The IRS may publish a list of qualified vehicles, but so far, no such list is readily available. Credit unions might want to start researching this issue and sorting their existing car loans to see which 2025 loans qualify. Also, going forward, credit unions should consider procedures to identify loans on qualifying vehicles.
Under the new rules, lenders will be required to file a new Form 6050AA with the IRS and provide a copy to the borrower by January 31. Taxpayers must include the vehicle identification number (VIN) on their tax return for the year the interest is paid to confirm the vehicle meets the U.S. final assembly requirement.
The IRS provides the description below from the new law:
“No Tax on Car Loan Interest”
- New deduction: Effective for 2025 through 2028, individuals may deduct interest paid on a loan used to purchase a qualified vehicle, provided the vehicle is purchased for personal use and meets other eligibility criteria. (Lease payments do not qualify.)
- Maximum annual deduction is $10,000.
- Deduction phases out for taxpayers with modified adjusted gross income over $100,000 ($200,000 for joint filers).
- Qualified interest: To qualify for the deduction, the interest must be paid on a loan that is:
- originated after December 31, 2024,
- used to purchase a vehicle, the original use of which starts with the taxpayer (used vehicles do not qualify),
- for a personal use vehicle (not for business or commercial use) and
- secured by a lien on the vehicle.
If a qualifying vehicle loan is later refinanced, interest paid on the refinanced amount is generally eligible for the deduction.
- Qualified vehicle: A qualified vehicle is a car, minivan, van, SUV, pick-up truck or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds, and that has undergone final assembly in the United States.
- Taxpayer eligibility: Deduction is available for both itemizing and non-itemizing taxpayers.
- The taxpayer must include the Vehicle Identification Number (VIN) of the qualified vehicle on the tax return for any year in which the deduction is claimed.
- Reporting: Lenders or other recipients of qualified interest must file information returns with the IRS and furnish statements to taxpayers showing the total amount of interest received during the taxable year.
- Guidance: The IRS will provide transition relief for tax year 2025 for interest recipients subject to the new reporting requirements.
You can obtain more information on this change at America’s Credit Unions (login required).
This blog will go over what the car loan interest deduction is and its impact on credit union. For a more detailed discussion, the Compliance team has created FAQs for America’s Credit Unions’ members.
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Under section 6050AA, a credit union that receives $600 or more in interest on certain qualifying vehicle loans must provide a form, likely similar to a form 1099 or 1098, to the Internal Revenue Service (IRS) reporting the interest collected. Credit unions are also required to provide a written statement to the borrower. The Bill requires the Secretary of the Treasury and the IRS to create a form.