IRS
President Donald Trump's deduction for interest paid on loans for new, American-made automobiles might be a help for some taxpayers, but America's Credit Unions said it foresees a host of hassles in helping members apply.
John Vatian, an AmCU regulatory lawyer, asked the IRS in a three-page letter to cut credit unions some slack as they re-engineer their systems to provide members with correct information that conforms to the nuances of the law.
"We urge the IRS to ... consider transition relief, phased implementation, or safe harbor protections for lenders that make good-faith efforts with the information available to them," Vatian wrote.
"We are concerned the IRS has underestimated the time and cost required to implement Form 1098-VLI," he wrote. "While completing a single form may take only a few minutes, the real burden comes from updating computer systems, working with vendors, building new data fields, testing software, training staff, and creating new compliance processes. These activities require significant time and financial investment, especially for small and mid-sized credit unions that rely on third-party service providers."
The One Big Beautiful Bill Act signed by President Trump last July included a provision that allows taxpayers a deduction up to $10,000 for the interest paid on new car loans originated from 2025 to 2028. It excluded households with modified adjusted gross income over $249,000 and individuals with incomes over $149,000. And it also excluded those who borrow to buy a used car, which is the majority of credit union members.
So taxpayers have to be rich enough to buy a new car, and poor enough to pass below the income thresholds.
A study released last July by Anderson Economic Group said most beneficiaries would cut $300 to $900 from their tax bill.
"The sweet spot for this deduction is younger workers buying a first or second car, working families who need a family-hauler, and trade workers who need lower-trim trucks for personal use," according to the researchers.
The study showed three scenarios:
- $300 in savings would apply to a taxpayer in the 12% marginal tax bracket with a $2,500 loan interest cost per year. This might apply to a single person earning an annual salary of $50,000.
- A married couple in the 22% bracket would save $900, assuming combined wage earnings of $105,000.
- A savings of over $1,000 would apply given a single earner with $85,000 in wages who borrows a large amount to purchase an expensive vehicle.
As the IRS pointed out on its draft instructions, taxpayers can claim the deduction by simply filling out Form 1098-VLI (still in draft form) with data on their SPVL for their APV. This is referring to a Specified Passenger Vehicle Loan (SPVL), which "is any indebtedness incurred after 2024 for the purchase of an applicable passenger vehicle (APV) (defined later) for personal use and that is secured by a first lien."
The IRS also warned that "no qualifying items or amounts must be allocated and only interest attributable to the portion that qualifies as SPVL must be reported on Form 1098-VLI."
Vatian asked the IRS to provide additional guidance and clear instructions for specific data elements required in the draft Form 1098-VLI.
"Many credit unions do not currently store vehicle information such as VINs, model year, make, and model in formats designed for tax reporting," Vatian wrote. "The IRS should provide clear standards for how this information should be reported and guidance on how to handle missing or incomplete data."
Contact Jim DuPlessis at Jim.DuPlessis@arc-network.com.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.