IRS
Following calls from credit unions and state leagues for clearer guidance, the Internal Revenue Service has issued a proposed rule detailing how the new auto loan interest deduction created under H.R. 1 will be implemented, including new reporting requirements that directly affect credit unions.
The proposal addressed provisions in H.R. 1, the budget reconciliation bill passed earlier this year, which established a temporary federal income tax deduction for interest paid on certain passenger vehicle loans for tax years 2025 through 2028. The law also created new information-reporting obligations for lenders, prompting concerns from credit unions about operational complexity and potential duplicate reporting.
America’s Credit Unions said the proposed rule responds to many of the issues it raised in a letter sent to the IRS last month. Most notably, the proposal clarified which party must report deductible auto loan interest and reduced duplicative reporting in indirect and assigned-loan structures, an area that had been a significant pain point for credit unions.
The IRS proposal also incorporated several additional changes sought by America’s Credit Unions and leagues. These include establishing clear rules for assignees in indirect lending on how to determine and report required information; clarifying how refinanced loans are treated by capping deductible interest to the outstanding principal balance at the time of refinance; and specifying reporting mechanics, including annual interest reporting and principal-balance snapshots. The rule also set allocation standards to separate qualifying vehicle-related amounts from non-qualifying balances, such as negative equity rolled into a loan.
Comments on the proposed rule are due Feb. 2, with a public hearing scheduled for Feb. 24. America’s Credit Unions said it will issue a
Regulatory Alert to gather feedback from credit unions to help shape its formal comment letter.
Beyond auto loans, the association has continued to press the IRS for practical guidance on remittance tax provisions in H.R. 1, particularly scenarios involving cash deposits later used for remittance transfers.
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