Update on Auto Loan Interest Deductions Under IRS Final Regulations

The IRS has now released final regulations implementing the OBBBA IRC Section 163(h)(4) deduction for "qualified passenger vehicle loan interest" of up to $10,000 per year on loans for vehicles purchased for personal use. The regulations clarify that a taxpayer purchases a vehicle for "personal use" if the buyer expects to use the vehicle for personal purposes more than 50% of the time during their anticipated ownership period. Personal use can include personal use by the borrower, their spouse and certain other relatives. The lender can rely on the loan documentation if it establishes personal use and the lender has no conflicting information. The regulations also offer clarity on when a vehicle is "new" for purposes of the deduction. The vehicle must be classified as new under the relevant loan documentation. The regulations also clarify that a vehicle can still be classified as new if the dealer used it as a demonstrator—so long as the dealer purchased the vehicle primarily for sale to customers in the ordinary course of its trade or business. For more information on the auto loan interest deduction, visit Tax Facts Online. Read More: Link to Q8522.3.