OBBBA Tax Deduction on New Auto Loans for Members

Credit Unions

Brian Sullivan, CPA, Partner

As we continue to monitor new tax legislation and how it affects your operations, I want to highlight key provisions of the OBBBA that have direct implications for credit unions, especially in the auto-lending space. Specifically, I’ll cover the new deduction for auto-loan interest and the closely related reporting obligation under Internal Revenue Code (IRC) § 6050AA. Understanding these changes will help your institution manage risk, update systems and processes, and work effectively with your borrowers.

The One Big Beautiful Bill Act (Public Law 119-21, signed July 4, 2025) includes a wide array of tax, regulatory and financial-services provisions.  From a credit-union perspective, your tax-exempt status remains intact (a relief for the industry).  There is a new above-the-line deduction (available even if a taxpayer takes the standard deduction) for interest on certain new auto loans.  To support that deduction, a new lender (or finance-entity) reporting duty has been added under IRC § 6050AA.  While the deduction is marketed as a benefit to borrowers, the compliance burden falls squarely on the lender side meaning credit unions must evaluate their auto-loan portfolios, origination systems, servicing systems and reporting workflows.  In short, this is not just nice to know, it’s a compliance obligation that demands attention.

For tax years 2025–2028, individual taxpayers may deduct interest paid or accrued on what the statute calls a “qualified passenger-vehicle loan” (QPVL) under IRC § 163(h)(4).  The loan must have been incurred after December 31, 2024, to purchase a new passenger vehicle for personal (non-business) use, secured by a first lien on the vehicle.  Eligible vehicles include new cars, minivans, vans, SUVs, pickup trucks, motorcycles, with gross vehicle weight rating (GVWR) less than 14,000 lbs, final assembly in the U.S., and original use must commence with the taxpayer (i.e., new vehicle).  The deduction is capped in practical terms (some analyses say up to $10,000 of interest annually) and subject to income phase-outs (for example, modified AGI over certain thresholds).

For credit unions, this means you may be offering loans that qualify (or laboratories of qualifying) — which you should identify.  From a marketing perspective, this deduction is a value-add you may want to highlight to members (e.g., “new federal tax deduction may apply”).  At the same time, you must collect and track sufficient data to support the lender reporting requirement under § 6050AA, because borrowers will need your institution’s statement to claim the deduction.

Now, let’s discuss the credit union reporting requirements.  This is the heart of the compliance issue. Here’s what your credit union needs to know.  Any person (in trade or business) who receives interest from an individual aggregating $600 or more in any calendar year on a “specified passenger vehicle loan” must file an information return with the IRS.  A “specified passenger vehicle loan” is the type of indebtedness described in § 163(h)(4)(B) — i.e., after December 31, 2024, for a purchase of an applicable passenger vehicle for personal use, secured by first lien.

According to § 6050AA(b) and (c), the information return must include:

  • Name and address of the individual from whom interest was received.
  • Amount of interest received for the calendar year.
  • Amount of outstanding principal on the loan as of the beginning of the calendar year.
  • Date of origination of the loan.
  • Year, make, model, VIN of the applicable passenger vehicle securing the loan (or other description prescribed).
  • A written statement to the borrower, containing substantially the same info + contact info for the lender, furnished by January 31 of the year following the calendar year for which the return is required.

The IRS issued Notice 2025-57, which provides transitional guidance: For interest received in 2025 on such a loan, a credit union may satisfy the § 6050AA reporting obligation by making a statement available to the borrower by January 31, 2026, indicating only the total amount of interest received in 2025. The full, detailed return/reporting requirement is delayed until future years.  If you comply with this simplified statement approach for 2025, the IRS should not impose penalties under §§ 6721 or 6722 for failure to file the full information return/statement in 2025.

So what does this mean for your credit union?  You must now identify which loans qualify (loan origination date, vehicle make/model/VIN, lien information, final assembly location) and begin capturing required data, even if full reporting starts in 2026.  Your origination, servicing and data systems may need updates, adding fields for VIN, vehicle specifications, final assembly code, status of first-lien, and tracking interest by borrower.  For 2025, you'll need to produce a statement to each borrower of a qualifying loan (i.e., loans originated after 12/31/2024) that shows the amount of interest you received in calendar year 2025. Preferably via portal, regular statement or annual statement.  That statement must be available by January 31, 2026. For calendar years 2026 onward, expect full information-return filing with the IRS plus furnishing to the borrower.  Failing to file or furnish required statements (in years where full compliance is required) may trigger penalties under §§ 6721 (return failure) and 6722 (statement failure) unless reasonable cause is shown.  You’ll want to conduct a review now of auto-loans made after December 31, 2024: which ones may trigger § 6050AA, which ones don’t (e.g., business use, used vehicles, non-qualified vehicles).  Consider proactively educating members (borrowers) about the new deduction to enhance value of your auto-loan products, but ensure you are ready to support it with accurate data.

Here is a high-level action plan for credit union management, lending, compliance, and IT operations teams.  Extract and identify all auto-loans originated after December 31, 2024, and determine whether they are secured by an “applicable passenger vehicle” (new, personal use, first lien, U.S. final assembly, etc).  Establish a flag or field in your system to mark “§ 6050AA-potential” loans, so you can track interest received, outstanding principal, vehicle details, borrower data for the next steps.  Work with your IT/servicing system vendors or internal team to add necessary data fields (e.g., VIN, make/model/year, lien status, final assembly info), interest accumulation tracking per borrower, and data export capability for reporting.  Define the process to furnish the required statement to borrowers by January 31, 2026 (for 2025 interest) — e.g., via e-portal, annual statement insert, or mailed statement. Format should be clear and include your contact info for queries.  Update your loan origination and documentation procedures: collect vehicle details early, capture borrower acknowledgement of personal use, lien status verification, and vehicle assembly info if required.  Ensure lending staff, compliance officers and operations team understand the criteria for “qualified vehicle loan” and the reporting obligation. Make sure lending marketing is aligned and staff do not over-promise without data readiness.  Review your marketing materials for auto-loans — you may now highlight the federal deduction benefit for members, but include appropriate qualifiers (e.g., vehicle and loan must meet rules).  Although the Treasury/IRS has provided transitional relief, the official form and instructions for § 6050AA are still forthcoming. Stay alert for IRS announcements and updates to filing deadlines or forms.  Even for 2025’s simplified reporting, maintain records showing your statement delivery to borrowers, and document your logic for loans screened out (why they didn’t qualify). If audited, you’ll want evidence of good-faith efforts.  The 2025 relief is limited; full reporting obligations kick in later. Use 2025 as a build-out year. Ensure your systems and processes are ready for full compliance in 2026 and on.

Because your credit union likely already offers competitive auto-loan rates and personalized service, the new deduction is an additional selling point. Now would be a good time to evaluate your auto-lending product positioning and borrower messaging.  While the deduction benefits borrowers, your institution bears the cost and operational burden of compliance. The sooner you act, the lower your risk of last-minute scramble and potential penalties.  The new deduction may open discussions with members about vehicle financing and tax savings. That could lead to deeper member engagement, cross-selling or refinancing opportunities.  Because eligibility for loans and deduction is so specific (new vehicle, first lien, U.S. assembly, personal use), you may face member queries or challenges in the future if data is missing. It’s wise to enhance documentation at origination.  The IRS and Treasury will issue further guidance (forms, instructions, perhaps clarifications on vehicle eligibility). Make compliance an ongoing item in your tax/compliance calendar and monitor updates.

Please note this newsletter is for general informational purposes and does not constitute legal or tax advice. You may wish to consult with your tax counsel or yours truly for guidance specific to your institution’s circumstances.

Thank you for your attention to this important change. We stand ready to assist your team as you navigate these new requirements.

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