WASHINGTON — Final IRS rules governing the new car loan interest deduction—some of which reflect credit union-backed recommendations while other desired changes were not included—have been published, while separately, America’s Credit Unions has joined with other financial trade groups in urging federal housing officials to prevent confusion as they implement new mortgage disclosure requirements involving VA loans.
The Internal Revenue Service published its final ruleimplementing the car loan interest deduction under Section 163(h)(4) of the Internal Revenue Code. The deduction rules are effective Nov. 7 and apply to taxable years beginning after Dec. 31, 2024. Related lender reporting requirements apply to interest received during calendar years 2025 through 2028.
Supported Provisions
According to America’s Credit Unions, provisions in the final rule that had the support of CUs include:
- Expressly allows GAP waivers or insurance, mechanical repair coverage, vehicle protection products, key fob replacement plans, warranties and extended warranties, credit insurance, sales taxes, title and registration fees and vehicle-related accessories to be included in a qualifying passenger vehicle loan.
- Clarifies that a vehicle’s “original use” does not begin when a dealer holds the vehicle primarily for sale, including when it is used as a demonstrator.
- Allows a vehicle manufactured in a previous model year to qualify if it is first sold to a non-dealer purchaser during the applicable period.
- Provides that, for a purchaser financing a vehicle, original use depends on whether the lender’s loan documentation classifies the vehicle as new.
- Establishes that “personal use” is determined when the loan is originated, meaning subsequent changes in how the vehicle is used do not affect eligibility.
- Confirms that the taxpayer, rather than the lender, is ultimately responsible for the deduction claimed on a tax return.
Supported Provisions That Were Not Included
America’s Credit Unions said the IRS declined to adopt some other changes sought by credit unions and that the organization will continue working with Treasury Department and IRS officials on implementation burdens.
The final rule can be found here.
Trades Warn VA Disclosure Could Confuse FHA Borrowers
Separately, America’s Credit Unions joined five other financial and housing trade groups in asking the Federal Housing Administration to include prominent VA eligibility language when implementing new mortgage disclosure requirements under the Veterans Affairs Loan Information Disclosure Act, or VALID Act.
The VALID Act, enacted as part of the 21st Century ROAD to Housing Act, requires changes intended to make servicemembers and veterans more aware of Department of Veterans Affairs home loan benefits.
In a letter to the Department of Housing and Urban Development, the groups said they support the law’s intent but warned that simply showing VA loan terms alongside FHA financing could lead some borrowers to mistakenly believe they qualify for VA financing.
“Presenting VA loan terms to all prospective FHA borrowers without explaining the basic eligibility requirements could cause consumer confusion and operational challenges for lenders,” the groups said.
America’s Credit Unions was joined on the letter by the American Bankers Association, Housing Policy Council, Independent Community Bankers of America, Mortgage Bankers Association and U.S. Mortgage Insurers.
Groups Seek Prominent Eligibility Warning
The associations said military service alone does not necessarily establish eligibility for a VA-guaranteed mortgage. Borrowers generally must meet applicable service and entitlement requirements, with eligibility commonly verified through a Certificate of Eligibility.
Without a clear explanation, the groups said borrowers could develop unrealistic expectations about interest rates, down payments, fees, mortgage insurance and other loan terms.
Lenders also could face additional work explaining to borrowers why they do not qualify for VA terms displayed on an FHA disclosure, potentially slowing the origination process, according to the letter.
The groups recommended that FHA’s revised Informed Consumer Choice Disclosure Notice make clear that neither the lender nor HUD guarantees that a borrower qualifies for any of the products shown and that final approval is subject to underwriting.
They also want the disclosure to explain VA service and entitlement requirements, the Certificate of Eligibility, the VA funding fee and possible exemptions from that fee, as well as the assumptions used to calculate the VA loan terms presented.
Groups Also Seek Update of FHA Form
The trade groups urged FHA to use implementation of the VALID Act as an opportunity to update other information on its existing consumer disclosure.
They said parameters for sales prices, closing costs and monthly mortgage insurance premiums have become outdated and should be revised to more closely reflect current market conditions.
The associations said they support informing eligible veterans and servicemembers about VA mortgage benefits but want the new comparison to provide enough context to prevent borrowers from assuming that every financing option displayed is available to them.
