The IRS and Treasury have released proposed regulations (REG-113515-25) implementing the qualified passenger vehicle loan interest (QPVLI) deduction and new lender information reporting obligations under IRC Sections 163(h)(4) and 6050AA, as added by the "One Big Beautiful Bill Act" (OBBBA).

The proposed regulations do not alter the transitional relief provided under Notice 2025-57 (see Tax Alert 2025-2171). To meet their information reporting obligations for interest paid in 2025, lenders must still provide borrowers with an interest reporting statement by January 31, 2026, but do not need to file with the IRS.

The deduction is effective for interest paid after December 31, 2024, and before January 1, 2029. Taxpayers may rely on the proposed regulations until final regulations are published.

The proposed regulations clarify how to determine:

• Whether the original use of a vehicle commences with a taxpayer, including addressing lease buy-outs, dealer vehicles and refinancing
• The amount of deductible interest on a qualified passenger vehicle loan that includes purchases of extended warranties, negative equity or other items or amounts customarily financed

Background

Under IRC Section 163(h)(4)(B), individuals, estates and non-grantor trusts may deduct up to $10,000 of interest on certain passenger vehicle loans incurred after December 31, 2024. IRC Section 6050AA requires lenders that receive more than $600 in interest on a specified passenger vehicle loan (SPVL) during a calendar year to report those payments.

Prop. Treas. Reg. Section 1.163-16 specifies how to determine whether the loan meets the requirements for the deduction. Prop. Treas. Reg. Section 1.6050AA-1 specifies how and what the lender must report.

Key QPVLI requirements

Definition of APV

Under the proposed regulations, QPVLI is deductible if the indebtedness is a specified passenger vehicle loan (SPVL), which is limited to a loan secured by a lien on the purchased applicable passenger vehicle (APV). The proposed regulations define an APV as a passenger vehicle that:

• Has a qualified vehicle classification (i.e., a car, sport utility vehicle (SUV), pickup truck, minivan, van or motorcycle)
• Has least two wheels
• Is manufactured primarily for use on public streets, roads and highways
• Is a motor vehicle under the Clean Air Act
• Has a gross vehicle weight rating below 14,000 pounds
• Has final assembly in the United States
• Has original use that commenced with the taxpayer
• Is acquired by the taxpayer for personal use at the time the debt is incurred

For purposes of determining whether a passenger vehicle is a car, minivan, van, SUV, pickup truck or motorcycle, the proposed regulations reference vehicle classification standards used by the Environmental Protection Agency (EPA).

EY observes: Industry had requested guidance on whether certain recreational vehicles (RVs) would qualify for the deduction. Small RVs are often known as vans, which would support their inclusion. The proposed regulations, similar to other IRS guidance, leverages the definitions in 40 CFR 600.002, which broadly define a van to include certain RVs:

"Van means any light truck having an integral enclosure fully enclosing the driver compartment and load carrying compartment. The distance from the leading edge of the windshield to the foremost body section of vans is typically shorter than that of pickup trucks and SUVs."

Some RVs are already reportable under Form 1098 mortgage interest reporting.

Final assembly

Consistent with an IRS published fact sheet, FS-2025-03, to determine final assembly in the United States, the proposed regulations permit the use of (1) the plant of manufacture as reported in the VIN under 49 CFR 565; or (2) the final assembly point reported on the label affixed to the vehicle as described in 49 CFR 583.5(a)(3) (see Tax Alert 2025-1628). The Preamble to the proposed regulations also allows taxpayers to use the National Highway Traffic Safety Administration (NHTSA) VIN Decoder to determine the location of final assembly.

Original use

The proposed regulations address several industry concerns on determining if original use commences with the taxpayer. Specifically, the proposed regulations consider original use of the vehicle to commence with the first person that takes delivery of the vehicle after it is sold, registered or titled, with the following exception: if the sale is cancelled within 30 days, original use commences with the subsequent owner if that subsequent purchaser's loan documentation treats the vehicle as a new vehicle.

EY observes: The original use provisions address industry concerns about dealer vehicles, which may be used by the dealer for test drives or as courtesy vehicles. Based on the proposed regulations, the vehicle does not qualify for the deduction if the dealer registers or titles the car and a taxpayer later purchases the vehicle, as the original use commenced with the dealer. The Preamble to the proposed regulations and the examples note that states may have different requirements for registering and titling a car, and those requirements may affect whether original use commences with the dealer or the taxpayer.

The proposed regulations also address industry concern about lease buy-outs. If a car is leased by a taxpayer who then buys out the lease through a finance arrangement, the proposed regulations consider original use to commence with the leasing company if the car was registered and titled with the leasing company during the lease, even though the taxpayer had possession of the car.

Personal use

To determine personal use, the vehicle must be used predominantly for personal purposes. The proposed rules adopt an objective standard: if the taxpayer (or close family, or other related individual) expects to use the APV more than 50% of the time for personal use at the time the loan is incurred, the personal use requirement is met. The proposed regulations do not require a re-evaluation of the use tests in subsequent years.

According to the Preamble, lenders may rely on the information in the lending agreement to determine if a vehicle is for personal use and reporting of QPVLI is required. Alternatively, they must obtain information regarding personal use from the obligor, or by some other means.

SPVL

The proposed regulations define SPVL as indebtedness that is:

• Incurred by the taxpayer after December 31, 2024
• Used to purchase an APV
• Secured by a first lien on that vehicle

The indebtedness includes amounts that are customarily financed in a vehicle purchase (e.g., taxes, warranties, service plans) and directly related to the transaction.

For purposes of determining first lien on the vehicle, both the statute and the proposed regulations address refinancing and provide that the loan will continue to qualify as a SPVL so long as (1) the refinancing is secured by a first lien on the APV, (2) the obligor does not change, and (3) the amount of the new loan does not exceed the outstanding balance on the refinanced SPVL. The proposed regulations further clarify that the loan will continue to qualify even if the obligor changes because the original obligor died.

The proposed regulations address two significant industry issues around determining how much of the loan is an SPVL: negative equity and other items or amounts customarily financed.

Negative equity occurs when the amount owed on the loan secured by the taxpayer's trade-in exceeds the trade-in's value and the excess is added to the new car loan. Under the proposed regulations, negative equity must be excluded from the SPVL amount; only the portion of the loan that relates to the value of the APV can be considered when determining the QPVLI.

The proposed regulations allow other items or amounts customarily financed with the purchase of an APV to be included within the SPVL amount. The proposed regulations provide examples of items that can be included, such as service plans, extended warranties, sales taxes and vehicle-related fees, while also specifying what items would be excluded, such as collision and liability insurance or property unrelated to the vehicle, like a trailer.

EY observes: The Preamble and the proposed regulations permit lenders to use the retail installment sales contract to determine which items qualify as the SPVL amount. While trade-in value and other amounts may be part of the retail sales contract to determine negative equity, industry will need time to implement a calculation to determine the SPVL amount. Given the proposed regulations were published shortly before the 2025 reporting due date, lenders will likely report 2025 interest based on the information readily available and taxpayers will need to determine whether amounts should be excluded. 

Information reporting requirements for lenders

IRC Section 6050AA introduces a new information reporting requirement for lenders that receive more than $600 in interest on an SPVL during a calendar year. Under the proposed regulations, lenders have the option to report even if the interest received is less than $600 for the calendar year. The information reporting requirements include:

• Filing an information return with the IRS
• Furnishing a written statement to the payor of record (borrower)

The proposed regulations clarify that the first lender to receive the interest is generally required to report. Accordingly, a lender that receives interest on an SPVL on behalf of someone else (e.g., the lender of record) will have the information reporting requirement. The proposed regulations include an example that, "if financial institution A collects interest on behalf of financial institution B," financial institution A will have the new information reporting requirement.

EY observes: The proposed regulations resolve ambiguity around whether a loan servicer must report, rather than the lender. This resolution is generally consistent with the existing mortgage interest reporting requirements.

A lender must report if it is a foreign person and receives interest at a location inside the United States. If instead, the interest is received at a location outside the United States, the lender is required to report only if it is a controlled foreign corporation (as defined in IRC Section 957(a)) or if 50% or more of the lender's gross income was effectively connected with the conduct of a trade or business within the United States.

The lender reports to the borrower of record, which is defined as the person carried on the lender's books and records as the principal borrower on the SPVL. Reporting is only required to a borrower that is a US person. To identify a non-US person for whom reporting is not required, the lender must collect a Form W-8 if the interest is received inside the United States, or documentary evidence such as a passport, if the interest is received outside the United States.

EY observes: Forms W-8 must be validated to meet regulatory standards and can expire. Instead of setting up a process to validate forms and track expiration, lenders may choose to report to all persons, regardless of US or non-US status.

Lenders with fewer than 10 information returns in a year may choose to file electronically; those with 10 or more must file electronically. Information returns must be filed with the IRS by February 28 (or March 31 if filed electronically) of the year following the calendar year of receipt. Written statements must be furnished to the borrower by January 31 of that same year following the calendar year of interest receipt.

Prop. Treas. Reg. Section 1.6050AA-1(f)(2) requires the information return to include:

• Name, address, and taxpayer identification numbers (TINs) for both lender and borrower
• Total interest received
• Loan origination date and outstanding principal at year start
• Vehicle details, such as year, make, model and VIN
• Date the SPVL was acquired by the lender

The lender must furnish a written statement (or copy of the IRS information return) to the borrower of record including:

• All information reported to the IRS
• A legend explaining that the information is important tax data and that the borrower may be unable to deduct the full amount of interest reported

EY observes: In December 2025, the IRS released a draft Form 1098-VLI for lenders to use for reporting to the IRS and furnishing copies to borrower. The form is not final and likely will not be available for use for 2025 interest reporting. As such, lenders should plan to use a substitute statement as described in Notice 2025-57. For 2026 reporting, to furnish Forms 1098-VLI to borrowers electronically, the lender will need to obtain electronic consent that meets the IRS requirements in Publication 1179 (Rev. July 2025) section 4.6.1 and Treas. Reg. Section 1.6055-2(a)(2).