WASHINGTON–The Internal Revenue Service has issued a proposed rule on auto loan interest deduction provisions in HR1, the budget reconciliation bill that was passed earlier this year, a move that is being welcomed by credit unions.
As the CU Daily has reported, HR 1 creates a temporary federal income tax deduction for interest on certain passenger vehicle loans for tax years 2025–2028 and establishes new reporting requirements for credit unions. But there has been considerable uncertainty around how the deductions will work and America’s Credit Unions and the Defense Credit Union Council have been calling for clarity.
Now, noted America’s Credit Union in its review, the proposal clarifies who must report deductible auto-loan interest and reduces duplicate reporting in indirect/assigned-loan structures.
The Clarity Provided
The trade group said the IRS has responded to requests it made earlier this year in a letter, including:
- Providing rules for assignees in indirect lending on how to determine and report required information
- Clarifying refinance treatment by capping deductible interest to the outstanding principal at refinance
- Specifying reporting timing/mechanics (interest for the year and principal-balance snapshots)
- Setting allocation rules separating qualifying vehicle-related amounts from non-qualifying amounts (including negative equity).
Deadline for Comments
Comments on the proposal are due Feb. 2. America’s Credit Unions said it will send a Regulatory Alert to credit unions to seek feedback and help inform official comments on the proposal. In addition, the IRS will host a public hearing on the proposal Feb. 24.
