(WASHINGTON, D.C.) — The public comment deadline for Treasury and irs proposed rules on the new “No Tax on Car Loan Interest” deduction is Monday, Feb. 2, 2026, and it matters for car buyers, lenders, and immigrant taxpayers planning for tax year 2026 (returns filed in 2027).
Treasury and the IRS announced the proposal in IR-2025-129 (Dec. 31, 2025). The proposed regulations were published in the Federal Register on Jan. 2, 2026.
Missing the Feb. 2 comment cutoff will not stop you from claiming the deduction later. It can, however, limit your ability to influence the final rules.
see irs updates at irs.gov/forms-pubs and the international portal at irs.gov/individuals/international-taxpayers.
📅 Deadline Alert: Feb. 2, 2026 is the deadline to submit public comments on the proposed “Car Loan Interest Deduction” regulations tied to the One, Big, Beautiful Bill.
Deadline summary: what’s due, and when
The dates below are the ones taxpayers and lenders should keep on their calendars right now.
| Tax Event | Deadline | Extension Available |
|---|---|---|
| Submit comments on proposed regs (Treasury/IRS) | Feb. 2, 2026 | No formal extension stated; late comments may be disregarded |
| Pay 2026 estimated tax (Q1) | Apr. 15, 2026 | No extension for paying |
| Individual federal return for tax year 2026 (Form 1040) | Apr. 15, 2027 | Yes, file Form 4868 for Oct. 15, 2027 |
missing filing deadlines can trigger failure-to-file penalties and interest. the irs explains penalty rules in the Form 1040 instructions and on IRS.gov.
Paying late can also create interest charges.
1) What is the “No Tax on Car Loan Interest” deduction under the One, Big, Beautiful Bill
This new rule creates an above-the-line deduction for qualified interest paid on certain vehicle loans. “Above-the-line” means it reduces income in arriving at adjusted gross income (AGI).
It can help even if you take the standard deduction. That last point matters for many immigrant families, since new arrivals often do not itemize in early years.
This deduction is not tied to itemizing, unlike mortgage interest on Schedule A. The deduction targets personal-use borrowers buying new, made-in-America vehicles.
It is not a business-vehicle interest write-off. It is also not a credit, and it is not the same rule as home mortgage interest.
The program is time-limited and applies only to loans originated and interest paid within the law’s covered years. The IRS has outlined the window in IR-2025-129 and the proposed regulations.
2) Eligibility and vehicle eligibility: who qualifies and what counts as a qualifying vehicle
Eligibility turns on three buckets: the taxpayer, the vehicle, and the loan.
Taxpayer basics. You generally must be an individual who is legally obligated to pay the debt. If you are a co-borrower, your share may depend on who actually paid the interest.
If you are only a co-signer with no legal obligation, the IRS may deny the deduction. This can get tricky for immigrants filing their first U.S. return; your filing status and residency status matter.
See IRS Publication 519, U.S. Tax Guide for Aliens (irs.gov/pub/irs-pdf/p519.pdf).
Vehicle basics. The vehicle generally must be new, bought for personal use, and have final assembly in the United States. The proposed rules also impose a gross vehicle weight rating under 14,000 pounds.
That covers most passenger cars and light trucks, not heavy commercial vehicles.
Loan basics. The loan generally must be originated during the covered window, used to buy the qualifying vehicle, and secured by the vehicle. That security point matters.
A personal loan used later to repay yourself after a cash purchase is different.
Refinancing. Refinancing does not automatically kill the deduction, but the proposed rules limit eligibility to interest on the refinanced balance tied to the original qualifying principal.
Cash-out amounts can reduce or eliminate eligibility. Keep records: save the purchase agreement, loan contract, VIN documentation, and year-end interest statements.
Mixed personal and business use can reduce this deduction. Business interest and expenses may belong on Schedule C or other business forms instead.
3) How much can you deduct, and how the phase-out works
The IRS guidance confirms a $10,000 annual cap on the deduction. It is a cap per taxpayer for the year, not per loan.
If you have two qualifying loans, the interest adds together, but the total cannot exceed $10,000.
There is also an income phase-out based on modified adjusted gross income (MAGI). The proposed regulations describe a reduction once MAGI exceeds $100,000 (single) or $200,000 (married filing jointly).
The benefit shrinks as income rises above those levels. For tax year 2026, estimate your interest for the year and compare it to the cap when planning.
If you expect a large bonus, the phase-out could reduce the value. If your income varies year to year, the benefit can change.
4) What lenders need to know: information reporting requirements
Lenders play a major role because borrower substantiation depends on lender reporting.
Under the proposed rules, lenders and other interest recipients generally must file an information return if they receive $600 or more of interest during the calendar year on covered loans. This is similar in concept to other interest reporting regimes.
Borrowers should expect a statement that supports the deduction. The statement is expected to include identity information, interest totals, loan dates, and vehicle details such as the VIN.
Those data points help the IRS match the deduction to a specific qualifying vehicle. For lenders, early compliance steps include capturing VIN at origination, tracking final assembly indicators, and updating annual statement systems.
The IRS also discussed transition guidance for early-year reporting in its Dec. 31, 2025 release.
5) Status, public comments, and how the rules may evolve
These are proposed regulations, not final rules. Taxpayers can often rely on proposed rules for planning, but final regulations can change definitions and procedures.
Treasury and the IRS asked for public comments by Feb. 2, 2026. Comments are submitted through Regulations.gov using instructions in the Federal Register notice.
Issues likely to get more detail include mixed-use allocation, refinancing mechanics, and lender reporting formats.
6) Official guidance and next steps (taxpayers and lenders)
Start with IRS primary sources: IR-2025-129 (IRS Newsroom) and Publication 519 for residency and filing status basics for immigrants.
Also check IRS forms and instructions at irs.gov/forms-pubs.
Practical steps for taxpayers for tax year 2026:
- Confirm the vehicle is new and has U.S. final assembly
- Keep the VIN, purchase agreement, and loan paperwork
- Reconcile your lender’s annual interest statement to your records
- Watch your MAGI if you are near $100,000 / $200,000
Practical steps for lenders:
- Ensure origination workflows capture VIN and required borrower details
- Build annual reporting that flags the $600 threshold
- Prepare for IRS form and instruction updates as final rules arrive
This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax situations vary based on individual circumstances. Consult a qualified tax professional or CPA for guidance specific to your situation.
The IRS is seeking public feedback on a new deduction for car loan interest effective for the 2026 tax year. This deduction applies to new, U.S.-made personal vehicles with a $10,000 annual cap. It is designed to assist a wide range of taxpayers, including immigrants, by reducing adjusted gross income without requiring itemization. Income phase-outs apply, and lenders face new reporting requirements for interest over $600.
