IRS Clarifies Auto-Loan Interest Reporting Rules

The IRS has released Internal Revenue Bulletin 2025-45, offering long-awaited guidance on how lenders and businesses must report auto-loan interest under the tax code.

While the rule may sound technical, its implications are far-reaching: for the first time, the IRS is tying vehicle financing data directly to business-use deductions, giving lenders and tax professionals new compliance obligations to manage ahead of the 2026 enforcement deadline.

TL;DR:

The IRS has released Bulletin 2025-45, introducing mandatory reporting for interest paid on business-use auto loans, beginning with a transitional year in 2025 and full enforcement in 2026. Lenders must electronically file Forms 1098 for qualifying loans, and business owners need accurate records to claim deductions.

What the New IRS Bulletin Says

The bulletin sets out transitional guidance for reporting interest paid on automobile loans used in a trade or business. It clarifies the scope of reporting under Section 6050AA, signaling that the IRS intends to bring auto-loan interest reporting in line with other information-reporting regimes such as mortgage interest and Form 1098.

Key provisions

• Transitional relief through 2025: Lenders are given time to upgrade data-collection and filing systems before full enforcement in 2026.

• Expanded coverage: Reporting applies to vehicle loans used wholly or partly for business purposes.

• Inflation-adjusted thresholds: The IRS updated the loan-amount thresholds for when reporting is required.

• Mandatory e-filing: Lenders must submit electronic information returns for business-purpose auto loans.

This guidance is part of the IRS’s broader modernization effort to use digital data to verify deductions and reduce under-reporting across business sectors.

Understanding Auto-Loan Interest Deductibility

The IRS bulletin does not change the basic rule: auto-loan interest is only deductible when a vehicle is used for business. What it does change is how the IRS will confirm those deductions.

If a vehicle is financed for business use, the deductible portion of interest corresponds to the percentage of business miles driven.

Example: A contractor uses a financed pickup truck 75% for work. Seventy-five percent of the annual interest on that loan may be deducted as a business expense.

Interest on a personal auto loan or commuting vehicle remains nondeductible. This distinction will likely be monitored more closely as lender-reported data becomes available to the IRS.

Implications for Lenders and Tax Professionals

Lenders and Auto-Finance Companies

• Must collect borrower identifiers (EINs) and classify loan purpose.

• Will be required to issue annual information returns reflecting interest paid on business-use vehicle loans.

• Could face penalties for late or incomplete filings once enforcement begins.

CPAs and Tax Attorneys

• Should prepare for data matching between lender filings and client deductions.

• Need to ensure clients maintain mileage logs and documentation of business use.

• Should review entity structures: vehicles titled personally but used for business may need clearer substantiation.

Why This Matters

The IRS has made clear that improved data reporting is central to its compliance strategy following increased funding under the Inflation Reduction Act. Auto-loan interest reporting has historically been inconsistent, particularly in industries where vehicles serve both personal and business functions.

By requiring lenders to report business-purpose interest, the IRS gains an additional verification tool. Taxpayers who claim deductions without adequate documentation may face correspondence audits or disallowed expenses.

For practitioners, this change represents both a compliance challenge and an advisory opportunity. Helping clients document vehicle use, adjust financing structures, and maintain proper records will be essential to avoiding penalties and preserving legitimate deductions.

What to Expect in 2026

The IRS is expected to release draft forms and further procedural guidance during 2025.

Anticipated developments include:

• A revised or new Form 1098-A specifically for auto-loan interest reporting.

• Clarification on mixed-use vehicles and proportional reporting.

• Technical specifications for electronic filing and lender data validation.

Businesses with financed vehicles should begin reviewing their records and loan agreements now. Early preparation will minimize compliance costs and reduce audit exposure once reporting becomes mandatory.

Conclusion

The IRS’s latest bulletin marks an important step toward integrating vehicle-finance data into the agency’s information-reporting framework. While the rules around what qualifies as a deductible auto-loan interest expense remain unchanged, how those deductions are verified will soon look very different.

Lenders, accountants, and business owners who act early by aligning their systems and documentation with these new expectations will be well-positioned when the reporting transition ends in 2026.

Frequently Asked Questions

Can you claim auto-loan interest on taxes?

Yes, but only for vehicles used in a trade or business. The deductible portion is based on the percentage of business use.

Can self-employed individuals write off auto-loan interest?

They can, provided the vehicle is used for business purposes. The deduction is typically claimed on Schedule C or Schedule F.

Is interest on a company car deductible?

If the loan is in the company’s name and the vehicle is used for business, the interest is deductible.

Are zero-interest auto loans deductible?

No. Without interest expense, there is nothing to deduct.

What records should taxpayers keep?

Mileage logs, loan agreements, and documentation showing business use are essential in case of an IRS inquiry.

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