For the first time, auto lenders are subject to federal information reporting requirements on par with those long established for mortgage interest — and the compliance stakes are high.
The One Big Beautiful Bill (OBBB) Act reconciliation package, H.R. 1, introduces a tax deduction for interest on qualifying vehicle loans and creates mandatory reporting requirements for lenders.
This provision signals a fundamental shift in federal oversight of the auto lending industry. The challenge: Most lenders' current origination and servicing systems don't capture the depth of data required to meet compliance requirements. These lenders will also need to implement new risk management practices and establish comprehensive training systems to ensure all relevant employees understand the bill's impact and their reporting obligations.
With the cost of non-compliance looming (Penalties start at $250 per incorrect return and can reach up to $3 million annually for larger portfolios), now is the time for auto lenders to prepare to meet the initial reporting deadline in January 2026.
So which cars and vehicles qualify? What data must lenders report? What steps should your institution take to prepare? Here's everything your FI needs to know.
Related: Keep up with the latest regulatory updates by using Ncomply, the all-in-one compliance management system.
Auto lender reporting obligations
Who must report?
The reporting requirements for lenders apply to loans originated after December 31, 2024, and cover any person engaged in a trade or business that receives $600 or more in interest on a specified passenger vehicle loan in any calendar year, such as banks, credit unions, and other auto financiers.
What information must be reported?
Lenders who receive $600 or more in interest in a calendar year must report specific information ("returns") to the Internal Revenue Service (IRS). The IRS will establish return forms, and the returns must include:
- Name and address of the person who paid the interest
- Total interest received during the calendar year
- Outstanding loan balance at the start of the year
- Loan origination date
- Vehicle details, including year, make, model, and VIN (or another description if required)
- Any other information the Secretary requires
Lenders must also provide a statement to each individual whose name must be reported on a return. The statement to the taxpayer must include the required information for the return, as well as the name, address, and phone number of the person who must make the return, serving as the contact person.
What is the deadline?
FIs must provide the statement to individuals on or before January 31 of the year after the calendar year for which the return was required.
For lenders with qualified 2025 loans, the first deadline is January 31, 2026. The IRS released transitional guidance concerning returns and provided additional time for the agency and recipients to implement required programming and form updates. The guidance states that the “recipient may satisfy the reporting obligations under section 6050AA for interest received in calendar year 2025 on a specified passenger vehicle loan by making a statement available to the individual on or before January 31, 2026, indicating the total amount of interest received in calendar year 2025 on a specified passenger vehicle loan.”
The statement to individuals can be made through an easily accessible online portal, regular monthly statement or annual statement, or other similar method.
What are the penalties for non-compliance?
The bill establishes penalties for non-compliance, including fines for failing to file correct information returns. Lenders who fail to file shall pay a penalty of $250 per return, up to a maximum of $3,000,000.
Penalties are reduced if the lender corrects inaccuracies, lowering the penalty to $50 if corrections are made within 30 days and to $100 if the inaccuracy is corrected by August 1 of the same calendar year as the return.
The IRS transitional guidance establishes a safeguard for 2025, clarifying that the agency will not impose penalties on individuals who received interest that satisfied the statement requirement for calendar year 2025.
Identifying qualifying loans
Although the reporting obligation is triggered once a borrower pays $600 or more in interest, understanding which loans qualify for the consumer tax deduction is essential for identifying reportable accounts and responding accurately to borrower inquiries.
Which vehicle loans qualify for the tax deduction?
The OBBB establishes a $10,000 tax deduction for tax years 2025-2028 on qualifying passenger vehicle loan interest. The law defines "qualifying passenger vehicle loan interest" as any interest that is paid or accrued during the taxable year on a loan incurred by the taxpayer after December 31, 2024, to purchase an applicable passenger vehicle for personal use that is secured by a first lien.
What are the vehicle requirements?
An "applicable passenger vehicle" is defined as any vehicle:
- First used by the taxpayer
- Made mainly for use on public roads
- Has at least two wheels
- Includes cars, minivans, vans, SUVs, pickup trucks, or motorcycles
- Classified as a motor vehicle under Title II of the Clean Air Act
- Has a gross vehicle weight under 14,000 pounds
The law also requires the vehicle to undergo final assembly in the U.S., meaning the last significant manufacturing step is completed there.
Related: 7 Fair Lending Risks Every Financial Institution Needs to Know
Are there income limitations?
The deduction has a phaseout provision for filers with modified adjusted gross income exceeding $100,000 for individuals, and $200,000 for joint filers. The deduction will be reduced by $200 for every $1,000 more than the income threshold.
Which loans are excluded from the tax deduction?
The law provides certain exceptions to the deduction, including
- Loans for fleet vehicle sales
- Loans for commercial vehicles not used personally
- Any lease financing
- Loans for vehicles with a salvage title
- Loans for vehicles meant for scrap or parts
Additionally, the bill stipulates that interest will not be viewed as qualified passenger vehicle loan interest unless taxpayers include the vehicle's identification number (VIN).
Bottom line: To be eligible for the auto loan interest deduction, the vehicle must be new, manufactured primarily for use on public roads, have at least two wheels, weigh less than 14,000 pounds, and undergo final assembly in the U.S.
How to prepare for auto loan reporting requirements
For auto lenders facing these new requirements, proactive preparation is essential. Here are the critical steps your institution should take now:
- Assess loan exposure: Review your auto loan portfolio for loans originated after December 31, 2024. Identify how many generate more than $600 in annual interest, and evaluate which required data elements your current systems capture — and which they don't. This assessment will reveal the scope of your compliance challenge and the operational lift required.
- Update origination and servicing systems: Don’t assume your existing vehicle loan data fields are sufficient. Review and update your processes and technology systems to ensure all required data points, including VIN, final assembly location, and vehicle year/make/model, are included.
- Implement processes and staff training: Begin developing and implementing processes to determine whether financed vehicles meet the final assembly requirement. Also, train staff so they understand the deduction limitations and can clearly explain them to consumers.
- Stay updated and prepare notices: Monitor your compliance management system for the latest IRS updates on the form and best methods for submitting returns. You can also begin preparing for the new consumer notice requirement.
The new vehicle interest reporting obligations mark a significant expansion of federal oversight in auto lending. Unlike previous state-level or voluntary frameworks, these are mandatory federal requirements that carry substantial penalties for noncompliance.
Lenders that act now will be best positioned for a smooth transition when the first reporting deadline arrives — lenders that delay risk operational disruptions, data quality issues, and costly penalties.
Want to learn about other compliance updates and obligations impacting FIs in 2026? Watch our webinar unpacking the Future of Compliance.
