IRS Released New Form for Car Loan Tax Deductions
Taxpayers may deduct up to $10,000 in vehicle loan interest beginning with the 2025 tax year.
Updated on Sept. 28, 2026 in Taxes
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The IRS has released final Form 1098-VLI and corresponding instructions to help taxpayers manage new vehicle loan interest deductions. These rules apply to interest paid on qualified passenger vehicle loans starting in the 2025 tax year.
Why it matters
This change stems from relief enacted in H.R. 1, providing a new way for households to lower their taxable income by claiming vehicle loan interest. The new documentation process helps standardize how lenders report these amounts to the federal government.
Taxpayers can claim a deduction of up to $10,000 for qualified passenger vehicle loan interest. The reporting rules for this interest apply to all relevant payments made between 2025 and 2028.
The players
IRS
The federal agency responsible for tax administration, collecting revenue, and enforcing tax laws for U.S. households.
The details
Credit unions and other lenders will use the new Form 1098-VLI to report qualifying interest payments in compliance with section 6050AA requirements. Households looking to utilize this benefit should note that the rules take effect for taxable years beginning after December 31, 2024. These reporting standards ensure that interest data is formally tracked through 2028.
Timeline
December 31, 2024: Deduction rules apply to tax years starting after this date.
2025-2028: Reporting rules apply to interest received during these years.
September 2026: The IRS officially released the final Form 1098-VLI.
November 7, 2026: The final rule becomes effective.
Money Landscape
This development marks a significant update to individual tax filings under the framework established by H.R. 1. It represents a new federal policy cycle regarding personal vehicle financing that will impact taxpayer bottom lines through 2028.
If you are financing a passenger vehicle, monitor your loan interest statements for 2025 to see if they qualify for the $10,000 deduction cap. Consult with a qualified tax professional to determine how this potential credit impacts your specific household tax liability.
The takeaway
The introduction of Form 1098-VLI provides a structured path to claim up to $10,000 in vehicle interest deductions starting in 2025. Begin tracking your auto loan interest statements now to ensure you have the necessary documentation for your future tax filings.
Further reading
Learn more about managing your tax obligations in our guide to Taxes.
Source note: This article includes information reported by CUToday.
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