Bulletin No. 2026–39

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2026–39

September 21, 2026

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

ADMINISTRATIVE, INCOME TAX

INCOME TAX

T.D. 10054, page 372.

REG-115646-25, page 414.

This document contains final regulations regarding the

deduction for certain taxpayers for an amount up to

$10,000 of qualified passenger vehicle loan interest. This

document also contains final regulations regarding new

information reporting requirements for certain persons

who, in a trade or business, receive from any individual

interest aggregating $600 or more for any calendar year

on a specified passenger vehicle loan, including applicable

penalties for failures to file information returns or furnish

payee statements as required. These regulations affect taxpayers that may deduct qualified passenger vehicle loan

interest, and also persons subject to these information

reporting requirements.

EXEMPT ORGANIZATIONS

Announcement 2026-16, page 413.

Revocation of IRC 501(c)(3) Organizations for failure to meet

the code section requirements. Contributions made to the

organizations by individual donors are no longer deductible

under IRC 170(b)(1)(A).

REG-119986-25, page 440.

This document contains proposed regulations providing that a

school cannot qualify for tax-exempt status as a charitable organization under § 501(c)(3) if it maintains racially discriminatory

practices or policies. The IRS has taken this position in sub-regulatory guidance for several decades. The proposed rules would

further state that racial discrimination is incompatible with charitable tax-exempt status regardless of the purpose behind that

discrimination. The proposed regulations would affect tax-exempt private schools, including primary and secondary schools,

colleges, universities, and professional or trade schools.

Finding Lists begin on page ii.

These proposed regulations would provide rules for determining a United States shareholder’s pro rata share of subpart F

income, tested income, or tested loss of a controlled foreign

corporation that reflect amendments made by Public Law 11921, 139 Stat. 72 (July 4, 2025), commonly known as the One,

Big, Beautiful Bill Act (OBBBA). The proposed regulations would

also modify certain information reporting requirements and the

applicability dates of certain related rules. Additionally, the proposed regulations include the rules described in Notice 202575 regarding the transition rule contained in section 70354(c)

(2) of the OBBBA.

Rev. Proc. 2026-32, page 406.

Revenue Procedure 2026-32 provides procedures under

§ 446 of the Internal Revenue Code and § 1.446-1(e) for

obtaining automatic consent of the Commissioner of Internal

Revenue to change methods of accounting for research or

experimental expenditures (i) to comply with § 174, as in

effect after amendment by § 13206(a) of Public Law 11597, 131 Stat 2054 (Dec. 22, 2017), commonly known as

the Tax Cuts and Jobs Act (TCJA), and prior to amendment

by § 70302(b)(1) of Public Law 119-21, 139 Stat. 189, 239

(July 4, 2025), commonly known as the One, Big, Beautiful

Bill Act (OBBBA), and (ii) to comply with §§ 174 and 174A, as

amended and enacted by the OBBBA, respectively.

Revenue Procedure 2026-32 also provides procedures

under § 446 and § 1.446-1(e) for obtaining automatic consent of the Commissioner to change methods of accounting

for contracts entered into in taxable years beginning after

July 4, 2025, to comply with § 460(e), as amended by the

OBBBA.

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and

enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of

internal practices and procedures that affect the rights and

duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature are

deleted to prevent unwarranted invasions of privacy and to

comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

the disposition of other cases. In applying published rulings and

procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to these

subjects are contained in the other Parts and Subparts. Also

included in this part are Bank Secrecy Act Administrative

Rulings. Bank Secrecy Act Administrative Rulings are issued

by the Department of the Treasury’s Office of the Assistant

Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

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monthly indexes are cumulated on a semiannual basis, and are

published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

September 21, 2026 

Bulletin No. 2026–39

Part I

26 CFR 1.163-16: Qualified passenger vehicle loan

interest.

T.D. 10054

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

Car Loan Interest

Deduction

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final

regulations regarding the deduction for certain taxpayers for an amount up to $10,000

of qualified passenger vehicle loan interest.

This document also contains final regulations regarding new information reporting

requirements for certain persons who, in a

trade or business, receive from any individual interest aggregating $600 or more for

any calendar year on a specified passenger

vehicle loan, including applicable penalties for failures to file information returns

or furnish payee statements as required.

These regulations affect taxpayers that may

deduct qualified passenger vehicle loan

interest, and also persons subject to these

information reporting requirements.

DATES: Effective date: The final regulations are effective on November 9, 2026.

Applicability date: For dates of applicability, see §§ 1.163-16(i) and 1.6050AA-1(i).

FOR FURTHER INFORMATION

CONTACT: Riston Escher of the Office

of Associate Chief Counsel (Income Tax

& Accounting) at (202) 317-7003 (not a

toll-free number).

SUPPLEMENTARY INFORMATION:

Tax Regulations (26 CFR part 1) under

sections 163 and 6050AA of the Internal

Revenue Code (Code), as amended and

enacted, respectively, by section 70203(a)

and (c)(1) of Public Law 119-21, 139 Stat.

72, 176-179 (July 4, 2025), commonly

known as the One, Big, Beautiful Bill

Act (OBBBA), related to the allowance

of a Federal income tax deduction under

section 163(a) and (h)(4) for qualified

passenger vehicle loan interest (QPVLI)

and certain information reporting requirements under section 6050AA for persons

receiving certain interest on a specified

passenger vehicle loan (SPVL). This document also contains amendments to the

Procedure and Administration Regulations (26 CFR part 301) relating to electronic filing of returns under section 6011

of the Code, and penalties under section

6721 of the Code for failures to file information returns and under section 6722

of the Code for failures to furnish payee

statements.

The regulations are issued under the

authority of section 7805(a) of the Code,

which authorizes the Secretary of the

Treasury or the Secretary’s delegate (Secretary) to prescribe all needful rules and

regulations for the enforcement of the

Code including all rules and regulations as

may be necessary by reason of any alteration of law in relation to internal revenue.

The regulations under section 6050AA are

also issued under the authority of section

6050AA(e), which authorizes the Secretary to issue such regulations or other

guidance as may be necessary or appropriate to carry out the purposes of section

6050AA, including regulations or other

guidance to prevent the duplicate reporting of information under section 6050AA.

The regulations under section 6011 are

also issued under the authority of section

6011(e), which authorizes the Secretary to

prescribe regulations that require taxpayers to electronically file returns, including information returns, if the taxpayer is

required to file at least 10 returns of any

type during a calendar year.

Authority

Background

This document contains amendments

that add new regulations to the Income

Section 70203(a) of the OBBBA

amended section 163(h) (relating to the

September 21, 2026

372

disallowance of any deduction for personal interest) by inserting a new paragraph (4) to provide an exception for

QPVLI. Section 70203(b) of the OBBBA

amended section 63(b) of the Code by

inserting a new paragraph (7) to allow this

deduction for taxpayers that do not itemize their deductions. Section 70203(c) of

the OBBBA added new section 6050AA

to the Code to require information returns

relating to applicable passenger vehicle

loan interest received in a trade or business from individuals. The amendments

made by section 70203 of the OBBBA

apply to indebtedness incurred after

December 31, 2024. The new allowance

of a deduction for QPVLI under section

163(a) and (h)(4) applies solely to taxable years beginning after December 31,

2024, and before January 1, 2029. Section

6050AA(f) provides that no information

return is required under section 6050AA

for any period to which section 163(h)(4)

does not apply.

I. Section 163

Section 163(a) allows a deduction for

all interest paid or accrued within the taxable year on indebtedness. Section 163(h)

generally disallows a deduction for personal interest. Section 163(h)(1) provides

that a taxpayer other than a corporation

cannot take a deduction for personal interest paid or accrued during the taxable year

under chapter 1 of the Code (chapter 1).

Section 163(h)(2) defines “personal interest” as any interest deductible under chapter 1 other than (a) interest paid or accrued

on indebtedness properly allocable to

the conduct of a trade or business (other

than the trade or business of performing

services as an employee), (b) investment

interest, (c) interest taken into account

under section 469 of the Code in computing income or loss from a passive activity,

(d) qualified residence interest, (e) interest

payable under section 6601 of the Code

on any unpaid portion of the tax imposed

by section 2001 of the Code for the period

during which an extension of time for

payment of such tax is in effect under section 6163 of the Code, and (f) any interest

allowable as a deduction under section

221 of the Code.

Bulletin No. 2026–39

As added by the OBBBA, new section

163(h)(4)(A) provides that in the case

of taxable years beginning after December 31, 2024, and before January 1,

2029, personal interest does not include

QPVLI. As a result, a deduction for

QPVLI is allowable under section 163(a)

for such taxable years. Section 163(h)(4)

(B)(i) provides that “qualified passenger

vehicle loan interest” means any interest

that is paid or accrued during the taxable

year on indebtedness incurred by the taxpayer after December 31, 2024, for the

purchase of, and that is secured by a first

lien on, an applicable passenger vehicle

(APV) for personal use, subject to certain

enumerated exceptions in section 163(h)

(4)(B)(ii). Section 163(h)(4)(C) provides

limitations on the amount of QPVLI

that a taxpayer can deduct during a taxable year. Section 163(h)(4)(D) defines

an “applicable passenger vehicle” as a

vehicle that satisfies the requirements of

section 163(h)(4)(D)(i) through (vi) but

excludes from the definition any vehicle

the final assembly of which did not occur

within the United States. Section 163(h)

(4)(E) provides the definition of “final

assembly” and special rules on the treatment of refinancings and related party

indebtedness.

II. Section 63(b)(7)

Section 63 defines “taxable income”

for purposes of subtitle A of the Code

(subtitle A). Section 63(a) provides the

general rule that, except as provided in

section 63(b), for purposes of subtitle A,

the term “taxable income” means gross

income minus the deductions allowed by

chapter 1 (other than the standard deduction). Section 63(b) provides that, in the

case of an individual who does not elect to

itemize the individual’s deductions for the

taxable year, for purposes of subtitle A,

the term taxable income means “adjusted

gross income” (as defined in section 62

of the Code), minus the deductions enumerated in section 63(b)(1) through (7).

As amended by the OBBBA, new section 63(b)(7) provides that so much of

the deduction allowed by section 163(a)

as is attributable to the exception under

section 163(h)(4)(A) is subtracted from

adjusted gross income in computing taxable income.

Bulletin No. 2026–39

III. Section 6050AA

Section 6050AA(a) provides that any

person engaged in a trade or business

who, in the course of that trade or business, receives from any individual interest

aggregating $600 or more for any calendar

year on an SPVL, must file an information return reporting the receipt of interest. Section 6050AA(b) provides that the

information return filed by the recipient of

such interest (interest recipient) must be in

the form prescribed by the Secretary and

must contain: (A) the name and address

of the individual from whom such interest was received, (B) the amount of such

interest received for the calendar year, (C)

the amount of outstanding principal on

the SPVL as of the beginning of such calendar year, (D) the date of origination of

that loan, (E) the year, make, model, and

vehicle identification number (VIN) of the

APV that secures that loan (or any other

description of that vehicle as the Secretary

may prescribe), and (F) any other information as the Secretary may prescribe.

Section 6050AA(c) provides that every

person required to make an information

return under section 6050AA(a) must also

furnish to each individual whose name is

required to be included in the return a written statement showing the name, address,

and phone number of the interest recipient, and the information required to be

included in the information return under

section 6050AA(b)(2)(B) through (F).

Section 6050AA(d)(1) provides that

terms used in section 6050AA that are also

used in section 163(h)(4) have the same

meaning as when used in section 163(h)

(4). Section 6050AA(d)(2) defines “specified passenger vehicle loan” as the indebtedness described in section 163(h)(4)(B)

with respect to any APV.

Section 6050AA(e) authorizes the Secretary to issue regulations or guidance as

may be necessary or appropriate to carry

out the purposes of section 6050AA,

including regulations or other guidance to

prevent duplicate reporting.

IV. Section 6011 and Electronic Filing of

Information Returns

Section 6011(e) authorizes the Secretary to prescribe regulations providing

standards for determining which returns

373

must be filed on magnetic media or in

other machine-readable form. Section

6011(e)(5) authorizes the Secretary to prescribe regulations that require taxpayers to

electronically file returns, including information returns, if the taxpayer is required

to file at least 10 returns of any type during

a calendar year.

V. Penalties Under Sections 6721 and

6722

Section 6721 imposes a penalty for

any failure to file an information return on

or before the required filing date, and for

any failure to include all the information

required to be shown on a return or the inclusion of incorrect information. Section 6722

imposes a penalty for any failure to furnish

a payee statement on or before the required

furnishing date to the person to whom such

statement is required to be furnished and for

any failure to include all the information

required to be shown on a payee statement

or the inclusion of incorrect information.

Section 70203(c)(2)(A) of the OBBBA

amended section 6724(d)(1) of the Code

to add information reporting requirements

under section 6050AA—regarding returns

relating to QPVLI received in a trade or

business from individuals—to the definition

of “information return.” Section 70203(c)

(2)(B) of the OBBBA similarly amended the

definition of “payee statement” in section

6724(d)(2). As a result of these amendments,

penalties under sections 6721 and 6722 may

be imposed on interest recipients that fail to

file correct information returns and payee

statements under section 6050AA.

On October 21, 2025, the IRS released

Notice 2025-57, 2025-45 I.R.B. 692, to

provide transitional guidance on the information reporting requirements under section 6050AA. Notice 2025-57 provides

that an interest recipient will be deemed

to have satisfied the reporting obligations

under section 6050AA for interest on

SPVLs received in calendar year 2025 if

the interest recipient makes a statement

available to the individual indicating the

total amount of interest received in calendar year 2025 on an SPVL.

VI. Notice of Proposed Rulemaking

On January 2, 2026, the Treasury

Department and the IRS published a

September 21, 2026

notice of proposed rulemaking and notice

of public hearing (REG-113515-25) in

the Federal Register (91 FR 67) under

sections 163, 6050AA, 6011, 6721, and

6722 (proposed regulations). The proposed regulations proposed rules regarding the deduction for certain taxpayers

for an amount up to $10,000 of QPVLI.

The proposed regulation also proposed

rules regarding the new information

reporting requirements for certain persons who, in a trade or business, receive

from any individual interest aggregating

$600 or more for any calendar year on

an SPVL, including applicable penalties

for failures to file information returns or

furnish payee statements as required. The

proposed regulations also proposed rules

relating to electronic filing of returns

under section 6011.

Summary of Comments and

Explanation of Revisions

I. Overview

The Treasury Department and the IRS

received 63 public comments in response

to the notice of proposed rulemaking.

Copies of the comments are available for

public inspection at http://www.regulations.gov or upon request. In addition, a

public hearing on the proposed regulations

was held on February 24, 2026, at which

three speakers provided testimony. After

considering all of the public comments,

speaker outlines, and testimony (collectively, comments) received in response

to the proposed regulations, the Treasury

Department and the IRS adopt the proposed regulations, as revised in response

to the comments described in this Summary of Comments and Explanation of

Revisions, as final regulations.

Comments addressing issues that are

outside the scope of this rulemaking are

generally not addressed in this Summary

of Comments and Explanation of Revisions or adopted in the final regulations.

These comments included recommendations and questions regarding implementation issues for other Code provisions

and examination selection criteria. Unless

otherwise indicated in this Summary of

Comments and Explanation of Revisions,

provisions of the proposed regulations

with respect to which no comments were

September 21, 2026

received are adopted without substantive

change.

II. Comments on Proposed § 1.163-16

A. In General

In response to the comments received,

the final regulations include revisions to the

following provisions in proposed § 1.16316: proposed § 1.163-16(b)(12) (Qualified

passenger vehicle loan interest (QPVLI))

(finalized as § 1.163-16(b)(13)); proposed

§ 1.163-16(b)(13) (Qualified vehicle classification) (finalized as § 1.163-16(b)

(14) (Qualified vehicle type)); proposed

§ 1.163-16(b)(14) (Secured by a first lien)

(finalized as § 1.163-16(b)(15)); proposed

§ 1.163-16(c)(2) (Determining the amount

of interest paid or accrued during a taxable year); proposed § 1.163-16(d)(2)

(Indebtedness incurred for the purchase of

an APV); and proposed § 1.163-16(e)(2)

(Determining whether original use commences with the taxpayer). Additionally,

in response to the comments received, the

final regulations include the addition of

the following new provisions in § 1.16316: § 1.163-16(b)(6) (Items or amounts

customarily financed in an APV purchase

transaction that are directly related to

the purchase of the APV); § 1.163-16(d)

(6)(v) (Example 5: Method of allocating

interest); § 1.163-16(e)(2)(ii) (Dealers);

§ 1.163-16(e)(2)(iii) (Original use for

joint purchasers).

The final regulations also include revisions to § 1.163-16(c)(3)(ii) (Exception

for substitute vehicle due to an unforeseen intervening event). The revisions

to § 1.163-16(c)(3)(ii) are intended to

clarify that a substitute APV described

in § 1.163-16(c)(3)(ii) is treated as the

APV with respect to which the SPVL was

incurred for the purposes of § 1.163-16(c)

(5) (VIN requirement) and § 1.163-16(d)

(4) (Refinancing of an SPVL).

B. Definitions

1. Secured By A First Lien

Section 163(h)(4)(B)(i) provides that

interest is QPVLI only if it is paid or

accrued on indebtedness that is incurred

by the taxpayer after December 31, 2024,

for the purchase of, and that is secured by

374

a first lien on, an APV for personal use.

Proposed § 1.163-16(b)(14) provided that,

for purposes of section 163(h)(4) and the

proposed regulations, “secured by a first

lien” means a valid and enforceable security interest in an APV under State or other

applicable law with priority ahead of all

other security interests, other than tax

liens or other similar security interests that

may be given higher priority at a later date

following the date of purchase and only in

limited circumstances.

One commenter requested that the final

regulations provide clarity on whether

“first lien” status is determined by the initial filing and attachment of the security

interest, regardless of involuntary liens

such as mechanic’s liens or State tax liens

that may cause the earlier lien to be subordinated. The commenter recommended

that the final regulations clarify that a loan

qualifies as a first lien so long as it was the

first voluntary security interest recorded

against the vehicle, disregarding involuntary liens (for example, mechanic’s liens

or State tax liens) that may take temporary

legal priority under State or local law.

The Treasury Department and the IRS

agree with the commenter that it would

be helpful to further clarify the status of

a lien that is subordinated by involuntary liens. Accordingly, § 1.163-16(b)

(15) provides that “secured by a first lien”

means the first voluntary security interest

recorded against the vehicle, disregarding

any involuntary liens that may be given

temporary higher priority at a later date.

One commenter noted that under State

law, vehicle lien placement generally

relates back to the loan origination date

if the lien is perfected within a statutory

grace period. In certain cases, however,

lien perfection may occur after this grace

period, often due to administrative delays

in title processing that are outside the lender’s control. Accordingly, the commenter

recommended that the final regulations

clarify that interest accruing from the loan

origination date (rather than the lien perfection date) may be QPVLI so long as

the contract was originated as a purchase

transaction secured by a first lien.

This commenter also noted that there

are circumstances in which a vehicle lien

is removed before the loan is paid in full,

such as in the case of repossession and

subsequent sale of the vehicle, or an insur-

Bulletin No. 2026–39

ance payment following a total loss claim.

Accordingly, the commenter recommended that the final regulations clarify

that temporary or permanent lien release

events that occur after loan origination do

not retroactively or prospectively disqualify a taxpayer from claiming the QPVLI

deduction, provided that the vehicle

finance contract was originally secured by

a first lien on the purchased APV.

The Treasury Department and the IRS

generally agree with these comments.

Accordingly, § 1.163-16(b)(15) provides that an APV may be considered to

be secured by a first lien even in a case

in which a lien has not yet been perfected

or recorded due to processing times or

other similar short-term delays arising

under State or other applicable law, and

in limited circumstances in which a lien is

removed in connection with the taxpayer

no longer owning the vehicle but the taxpayer continues to be liable for an SPVL,

such as in the case of a repossession of the

vehicle or an insurance payout following a

total loss claim.

2. Qualified Vehicle Type

Section 163(h)(4)(D)(iv) provides that

a vehicle is an APV only if it is a car, minivan, van, sport utility vehicle, pickup

truck, or motorcycle. Proposed § 1.16316(b)(13)(ii) through (vii) defined the

terms “car,” “minivan,” “van,” “sport utility vehicle,” “pickup truck,” and “motorcycle” by reference to certain vehicle

classifications and definitions used by the

Environmental Protection Agency (EPA).

Some of these classifications depend on

a vehicle’s gross vehicle weight rating

(GVWR) and one of these definitions

depend on a vehicle’s curb mass. Further,

section 163(h)(4)(D)(vi) requires, and

proposed § 1.163-16(e)(1)(vi) provided

that for a vehicle to be an APV it must

have a GVWR of less than 14,000 pounds.

One commenter noted that the proposed § 1.163-16(b)(13)(v) definition of

sport utility vehicle would exclude sport

utility vehicles with a GVWR exceeding 10,000 pounds. The commenter also

noted that the proposed § 1.163-16(b)

(13)(vi) definition of pickup truck would

exclude pickup trucks with a GVWR

exceeding 8,500 pounds. The commenter

requested clarification on how the defi-

Bulletin No. 2026–39

nitions in proposed § 1.163-16(b)(13)(v)

and (vi) would operate together with the

14,000-pound GVWR limitation provided

by section 163(h)(4)(D)(vi) and proposed

§ 1.163-16(e)(1)(vi).

The Treasury Department and the IRS

agree with the commenter that the definitions of sport utility vehicle and pickup

truck provided in proposed § 1.163-16(b)

(13) could cause confusion regarding the

treatment of those vehicles that have a

GVWR that exceeds the GVWR specified

in the applicable definition referenced in

proposed § 1.163-16(b)(13), but do not

exceed the 14,000-pound GVWR limitation provided by section 163(h)(4)(D)(vi).

Further, while the definition of motorcycle referenced in proposed § 1.163-16(b)

(13) would exclude motorcycles with

a curb mass greater than 1,499 pounds,

this weight restriction is not a statutory

requirement. Accordingly, § 1.163-16(b)

(14) provides broader definitions of sport

utility vehicle, pickup truck, and motorcycle that do not reference a GVWR or curb

weight limitation for vehicles. Additionally, for clarity and ease of administration,

the final regulations define van and minivan by direct reference to the applicable

EPA regulation. As under the proposed

regulations, these revised definitions operate together with, and do not alter, the separate requirement in section 163(h)(4)(D)

(v) that the vehicle be treated as a motor

vehicle for purposes of title II of the Clean

Air Act.

C. Qualified Passenger Vehicle Loan

Interest (QPVLI)

Section 163(h)(4)(B)(i) provides and

proposed § 1.163-16(d)(1) provided that

interest is QPVLI only if it is paid or

accrued on indebtedness that is incurred

by the taxpayer after December 31, 2024,

for the purchase of, and that is secured by

a first lien on, an APV for personal use.

Proposed § 1.163-16(c) provided, in relevant part, that interest is QPVLI only if

the interest is paid or accrued during the

taxable year on indebtedness that is an

SPVL secured by a first lien on an APV,

and is not excluded from the definition of

QPVLI.

For purposes of section 163(h)(4),

QPVLI includes all interest payable with

respect to the amount financed under an

375

SPVL. In general, interest is an amount

paid, received, or accrued as compensation for the use or forbearance of money

under the terms of an instrument or contractual arrangement that is treated as a

debt instrument for Federal income tax

purposes or an amount otherwise treated

as interest under the Code or Income

Tax Regulations. For example, see

§ 1.163(j)-1(b)(22)(i); see also Deputy v.

DuPont, 308 U.S. 488, 498 (1940).

Several commenters requested clarification on what constitutes interest for purposes of section 163(h)(4). Specifically,

clarification was requested as to the treatment of stated periodic interest, prepaid

interest (such as points), origination-related or financing-related charges, prepayment penalties, late payment charges,

default-related charges, returned payment

fees, and deferred or capitalized interest

that is added to the outstanding principal balance in accordance with the terms

of the indebtedness. Some commenters

mentioned that certain of the fees are specifically referenced in other regulations

or guidance relating to the deduction of

interest for Federal income tax purposes

(for example, see §§ 1.221-1(f) and

1.6050H-1).

The Treasury Department and the IRS

agree with the commenters that additional

clarification on what constitutes interest

is appropriate, including the addition of

examples of fees that are interest for purposes of section 163(h)(4). Accordingly,

§ 1.163-16(c)(2)(i) clarifies that QPVLI

includes prepaid interest in the form of

points and deferred or capitalized interest. The final regulations also provide

that QPVLI includes origination-related

or financing-related charges, prepayment penalties, late payment charges,

default-related charges, and similar fees,

if such charge, penalty, or fee is characterized as interest expense for Federal

income tax purposes and is included in

the amount reported as interest in the

statement furnished to the taxpayer under

section 6050AA(c) and § 1.6050AA-1(h).

However, to the extent such interest

(including prepaid interest in the form of

points or deferred or capitalized interest)

creates or increases the amount of original

issue discount on the SPVL, such amounts

generally are not deductible until paid in

accordance with the payment ordering

September 21, 2026

rules described in § 1.163-16(c)(2)(ii).

See also section 1275(b) of the Code.

The payment ordering rules in §§ 1.446-2

and 1.1275-2 determine when interest

(including original issue discount) is paid

and therefore deductible by the borrower.

Similarly, these rules generally apply for

information reporting purposes, including

section 6050AA.

D. Specified passenger vehicle loan

(SPVL)

1. Indebtedness

Section 163(h)(4)(B)(i) provides and

proposed § 1.163-16(d)(1) provided that

interest is QPVLI only if it is paid or

accrued on indebtedness that is incurred

by the taxpayer after December 31, 2024,

for the purchase of, and that is secured by

a first lien on, an APV for personal use.1

Proposed § 1.163-16(c) provided, in relevant part, that interest is QPVLI only if the

interest is paid or accrued during the taxable year on indebtedness that is an SPVL

secured by a first lien on an APV.

a. Incurring Indebtedness

Multiple commenters recommended

that taxpayers should also be able to

deduct QPVLI for vehicle loans incurred

prior to December 31, 2024. These commenters noted that section 163(h)(4)(B)(i)

excludes taxpayers who took out a loan to

purchase a new vehicle in late 2024 but

will pay nearly all of the interest on the

loan from 2025 through 2028, the years in

which QPVLI may be deducted.

Section 163(h)(4)(B)(i) defines “qualified passenger vehicle loan interest” or

QPVLI, in relevant part, as interest paid

on a loan incurred after December 31,

2024. Therefore, the Treasury Department and the IRS are not able to adopt the

commenters’ recommendation as doing so

would be inconsistent with the plain language of the statute.

One commenter asked how to identify

the amount of interest if a vehicle is purchased with a credit card. Section 163(h)

(4)(B)(i) requires, in relevant part, that

indebtedness be secured by a first lien on

an APV. The Treasury Department and the

IRS note that generally credit card indebtedness is not secured indebtedness. Therefore, the purchase of an APV, in whole or

in part, with a credit card would generally

not result in an SPVL and therefore any

interest paid or accrued on this credit card

indebtedness would not be QPVLI.

b. Amount of the Indebtedness

i. Indebtedness Incurred to Purchase an

APV

Several commenters requested that the

Treasury Department and the IRS treat all

of the indebtedness incurred in connection with the purchase of an APV as an

SPVL, and not require an allocation of the

indebtedness between the SPVL portion

and the non-SPVL portion as provided in

proposed § 1.163-16(d)(2)(iii)(A) because

of the compliance burden this allocation

approach would impose.

The allocation approach, however, is

necessary to ensure compliance with the

statutory requirement that only interest

”for the purchase” of an APV is deductible

under section 163(h)(4). Accordingly, the

final regulations maintain the allocation

approach.

Proposed § 1.163-16(d)(2)(i) generally

provided that indebtedness qualifies as an

SPVL only to the extent the indebtedness

is incurred for the purchase of an APV

and, if part of the same purchase transaction, for any other items or amounts

customarily financed in an APV purchase

transaction and that are directly related to

the purchase of the APV. The preamble

to the proposed regulations provided that

whether items or amounts are customarily

financed in an APV purchase transaction

is determined on an industry-wide basis,

and not by reference to the financing terms

of a particular financing entity. Proposed

§ 1.163-16(d)(2)(i) provided examples

of such “customarily financed” items to

include vehicle service plans, extended

warranties, sales taxes, and vehicle-related fees. Proposed § 1.163-16(d)(2)

provided that any indebtedness that is not

described in proposed § 1.163-16(d)(2)

(i) would not qualify as an SPVL, even

if the items or amounts were incurred as

part of a purchase transaction for an APV.

Examples of such indebtedness include

indebtedness incurred for the repayment

of negative equity on a loan secured by

a trade-in vehicle, to purchase collision

and liability insurance, or to purchase any

property or services not directly related to

an APV (for example, a trailer or boat).

Several commenters requested that the

Treasury Department and the IRS expand

the list of examples in proposed § 1.16316(d)(2)(i) of items that are customarily

financed in an APV purchase transaction

that are directly related to the purchase of

the APV, including such items as vehicle

repair plans, mechanical repair coverage,

vehicle protection products (including

tire, wheel, paint, and interior protection

products), warranties, extended warranties, guaranteed asset protection (GAP)

insurance, credit-related insurance products (including credit-related accident,

health, and life products), key fob replacement, and title and registration fees.

The Treasury Department and the IRS

agree with the commenters that expanding the examples of items customarily

financed in an APV purchase transaction

that are directly related to the purchase of

the APV would provide additional clarity.

Accordingly, the final regulations expand

the list of examples of items customarily

financed in an APV purchase transaction

that are directly related to the purchase

of the APV. Further, the final regulations

clarify that the exclusion for collision and

liability insurance applies only to collision or liability insurance that is not credit

insurance.

One commenter requested that the

Treasury Department and the IRS expand

the list of examples in proposed § 1.16316(d)(2)(i) to include vehicle-related

accessories as items that are regarded as

customarily obtained or paid for as part of

an APV purchase transaction. The Treasury Department and the IRS agree that

indebtedness attributable to vehicle-related accessories that are components of

the APV may be included in an SPVL.

Accordingly, the final regulations provide

that indebtedness incurred for vehicle-related accessories that are components of

Section 163(h)(4)(B)(i) does not use a specific term for this indebtedness, and the final regulations, like the proposed regulations, refer to such indebtedness as a “specified passenger vehicle

loan” or an “SPVL,” which is the term used in section 6050AA to reference this indebtedness, for consistency.

1

September 21, 2026

376

Bulletin No. 2026–39

the APV purchased as part of an APV

transaction may be an SPVL. Additionally, the final regulations now include language adopted from the preamble to the

proposed regulations to make clear that

whether items or amounts are customarily

financed in an APV purchase transaction

and are directly related to the purchase

of the APV is determined on an industry-wide basis and not by reference to the

financing terms of a particular financing

entity.

ii. Negative Equity

A number of comments received were

related to amounts representing debt on a

vehicle traded in as part of the purchase

transaction for the APV in excess of the

value of the vehicle, which is sometimes

referred to as “negative equity.” Proposed

§ 1.163-16(d)(2)(ii) provided that indebtedness incurred for amounts representing

negative equity under an existing loan

on a trade-in vehicle is not incurred by a

taxpayer for the purchase of an APV, and

therefore is not an SPVL.

Many commenters requested that the

Treasury Department and the IRS instead

provide that indebtedness incurred for

amounts representing negative equity may

qualify as an SPVL, especially because the

incurrence of indebtedness for amounts

representing negative equity occurs regularly for many purchasers.

The Treasury Department and the IRS

do not adopt these requests, and the final

regulations provide that indebtedness

incurred for amounts representing negative equity is not incurred by a taxpayer

for the purchase of an APV, and therefore

is not an SPVL. Section 163(h)(4)(B)(i)

describes indebtedness that is incurred by

the taxpayer for the purchase of an APV

for personal use. Amounts representing

negative equity are not incurred for the

purchase of an APV as required by the

statute and instead represent indebtedness related to a prior purchased vehicle

that is refinanced in connection with the

purchase of a new vehicle. While proposed § 1.163-16(d)(2)(i) provided that an

SPVL also includes indebtedness incurred

for items or amounts customarily financed

in an APV purchase transaction and that

are directly related to the purchase of the

APV, negative equity on an existing vehi-

Bulletin No. 2026–39

cle loan is not related to the purchase of

the APV—the negative equity instead

relates to a prior vehicle purchase transaction that is distinct from and unrelated

to the APV purchase. Moreover, allowing amounts representing negative equity

to be included in an SPVL would allow

taxpayers to deduct interest attributable

to indebtedness incurred prior to 2025 or

for the purchase of a vehicle that is not an

APV. Accordingly, the final regulations

exclude amounts of indebtedness attributable to negative equity from being an

SPVL.

c. Method of Allocating Interest

Proposed § 1.163-16(d)(2)(iii)(A) provided that in the case of indebtedness that

is partially an SPVL, payments of interest

and principal are allocated on a pro rata

basis between the portion of indebtedness

that is an SPVL and the portion of indebtedness that is not an SPVL.

Two commenters requested guidance

on acceptable allocation methods or,

alternatively, requested confirmation as

to whether reasonable allocation methods will be permitted. However, neither

commenter suggested any examples of an

allocation method different from the pro

rata method contained in the proposed

regulations. Another commenter proposed

calculating the amount of deductible interest on a proportional basis. For example,

if a consumer financed a vehicle with a

balance of $50,000 and $5,000 of that balance was determined to not be an SPVL,

deductible interest would be 90 percent

(45,000/50,000) of the total interest paid

with 10 percent (5,000/50,000) being

non-deductible.

The final regulations require the use of

the pro rata allocation method and do not

provide for any other allocation method.

The final regulations also add an example

illustrating the pro rata allocation method.

See § 1.163-16(d)(6)(v).

2. Refinancing

Section 163(h)(4)(E)(ii) generally provides that a new loan resulting from refinancing an SPVL is an SPVL if the new

loan is secured by a first lien on the APV

with respect to which the refinanced SPVL

was incurred, but only to the extent the

377

amount of the new loan does not exceed

the amount of the refinanced SPVL. This

proposed rule was described in proposed

§ 1.163-16(d)(4), which clarified that the

amount of the new loan that is an SPVL is

limited to the outstanding balance of the

refinanced SPVL as of the date of the refinancing. Consistent with section 163(h)(4)

(B)(i) and (h)(4)(D)(i), proposed § 1.16316(d)(5)(i) provided that the SPVL must

have been originally incurred by the taxpayer, and proposed § 1.163-16(d)(4) provided that, if there is a change in obligor

as part of the refinancing, the new loan is

not an SPVL with regard to any obligor

other than the original obligor unless the

refinancing is in connection with a change

in obligor by reason of the obligor’s death

within the meaning of proposed § 1.16316(d)(5)(ii).

A number of commenters requested

that the Treasury Department and the IRS

clarify in the final regulations whether

additional APV-related products or customary amounts incurred in a refinancing (for example, refinancing charges

and vehicle-related consumer protection products, including warranties and

insurance products) constitute indebtedness that is an SPVL. The commenters

described a typical situation in which the

customer refinances the loan to purchase

an APV shortly after the customer purchased the APV (for example, to get a

lower interest rate than the rate charged

by the dealer). As part of the refinancing, the customer finances the purchase

of what would otherwise be “customarily

financed” items or amounts in an APV

purchase transaction, such as GAP insurance, that the customer did not purchase

in connection with the original APV purchase transaction.

The Treasury Department and the IRS

do not adopt these requests. Under section

163(h)(4)(E)(ii), if an SPVL is refinanced,

the new loan cannot qualify as an SPVL

to the extent the amount of the new loan

exceeds the amount of the refinanced

SPVL. The inclusion of amounts in excess

of the amount of the refinanced loan, even

if such amounts are attributable to products or amounts related to or customarily

incurred with the purchase of an APV,

would conflict with the plain language of

the statute. Accordingly, the final regulations do not adopt these comments.

September 21, 2026

Several commenters requested that the

Treasury Department and the IRS clarify

in the final regulations whether the inclusion of additional obligors in a refinancing

of an SPVL would result in the new loan

failing to qualify as an SPVL. Consistent

with section 163(h)(4)(B)(i) and (h)(4)(D)

(i), and as provided in proposed § 1.16316(d)(5)(i), indebtedness is an SPVL only

if it was originally incurred by the taxpayer. Accordingly, the Treasury Department and the IRS clarify that in the event

a new borrower is added to indebtedness

as part of a refinancing of an SPVL, the

indebtedness continues to be an SPVL

with respect to the original obligor(s), but

is not an SPVL with respect to the new

obligor(s).

One commenter requested clarification

as to whether interest attributable to prior

vehicle loan balances on an SPVL that are

rolled into a new loan as part of a refinancing may be included in the new SPVL to

the extent those balances are part of the

amount financed. The final regulations

provide that the amount of a new loan,

to the extent attributable to accrued but

unpaid interest on the refinanced SPVL,

may qualify as an SPVL provided all the

other requirements to be an SPVL are satisfied.

E. Applicable Passenger Vehicle (APV)

Section 163(h)(4)(D) defines APV as

meaning any vehicle: (i) the original use

of which commences with the taxpayer;

(ii) that is manufactured primarily for use

on public streets, roads, and highways

(not including a vehicle operated exclusively on a rail or rails); (iii) that has at

least 2 wheels; (iv) that is a car, minivan,

van, sport utility vehicle, pickup truck, or

motorcycle; (v) that is treated as a motor

vehicle for purposes of title II of the Clean

Air Act; and (vi) that has a GVWR of less

than 14,000 pounds. Section 163(h)(4)

(D) also provides that the term APV does

not include any vehicle the final assembly

of which did not occur within the United

States.

1. Original Use

Section 163(h)(4)(D) provides, in

relevant part, that for a vehicle to be an

APV, the original use of the vehicle must

September 21, 2026

commence with the taxpayer. Proposed

§ 1.163-16(e)(2)(i) provided that original

use of a vehicle commences with the first

person that takes delivery of the vehicle

after the vehicle is sold, registered, or

titled. In the case of a dealer, proposed

§ 1.163-16(e)(2)(i) provided that original use of a vehicle does not commence

with the dealer unless the dealer registers

or titles the vehicle. In the case of a purchaser that is not a dealer and that incurs

indebtedness to purchase a vehicle, proposed § 1.163-16(e)(2)(i) provided that

original use of the vehicle does not commence with that purchaser unless the vehicle is treated as a new vehicle under the

loan documentation.

One commenter requested clarity

regarding the definition of “new vehicle”

in proposed § 1.163-16(e)(2)(i). The Treasury Department and the IRS clarify that

the requirement that a vehicle be treated

as a new vehicle under the loan documentation refers to the lender’s classification

of the vehicle for purposes of its financing

programs.

Multiple commenters recommended

that the definition of APV be extended to

include used or “nearly-new” vehicles.

Several of these commenters noted that

the definition should be changed because

lower-income taxpayers cannot afford to

purchase new vehicles. Section 163(h)

(4)(D) provides, in relevant part, that for

a vehicle to be an APV, the original use

of the vehicle must commence with the

taxpayer. If the original use of a vehicle

commences with a person other than the

taxpayer, the vehicle is not an APV in the

hands of the taxpayer. Allowing a taxpayer that does not satisfy the original use

requirement to treat the vehicle as an APV

would be in direct conflict with the plain

language of the statute and congressional

intent. Accordingly, the Treasury Department and the IRS decline to adopt this recommendation.

Multiple commenters noted that State

vehicle titling and registration requirements for demonstrator vehicles vary by

State, leading to differing consumer outcomes in different jurisdictions. Specifically, the commenters noted that in States

that require a dealer to title or register

demonstrator vehicles, the original use

of that vehicle would always commence

with the dealer and therefore would never

378

commence with a purchaser that is not a

dealer. One commenter noted that this rule

is arbitrary, and recommended the final

regulations provide that original use of a

vehicle be deemed to commence with the

first purchaser that is not a dealer, notwithstanding any prior temporary use or titling

by the dealer for demonstrator or service

vehicle purposes.

The Treasury Department and the IRS

understand and appreciate that taxpayers

are concerned that dealers’ prior use of

vehicles could prevent original use from

commencing with a subsequent purchaser

that is not a dealer, including concerns

that this result may vary among States.

Accordingly, § 1.163-16(e)(2)(ii) provides that original use of a vehicle held

by a dealer does not commence with the

dealer if the vehicle is held primarily for

sale to customers in the ordinary course

of its trade or business, and as a result the

dealer is not considered to be the first person that takes delivery of the vehicle after

it is sold, registered, or titled as described

in § 1.163-16(e)(2)(i). However, original

use of a vehicle may commence with a

dealer if the vehicle is held by the dealer

for any purpose other than primarily for

sale to customers in the ordinary course of

its trade or business. For example, a dealer

may own a service vehicle that is not held

primarily for sale to customers and instead

is used to support the dealer’s business

operations, such as use as a customer

loaner. Original use of this service vehicle will generally begin with the dealer. In

contrast, a dealer may own a demonstrator vehicle that is held primarily for sale

to customers and is used for customer test

drives. Original use of this demonstrator

vehicle will generally not begin with the

dealer and instead may begin with a customer that purchases the vehicle. This rule

is consistent with similar concepts in the

Code, such as the original use requirement

for certain property to be eligible for the

additional first year depreciation deduction under section 168(k)(2)(A)(ii) of the

Code. Section 1.168(k)-2(b)(3)(i) and (b)

(3)(ii)(A) provide in relevant part that

depreciable property meets the requirement if the original use of the property

commences with the taxpayer. Section

1.168(k)-2(b)(3)(ii)(A) explains that original use means the first use to which the

property is put, whether or not that use cor-

Bulletin No. 2026–39

responds to the use of the property by the

taxpayer. Example 2 in § 1.168(k)-2(b)(3)

(vii)(B) applies the original use requirement to a dealer’s use of a vehicle as a

demonstrator for prospective customers

while the vehicle is held primarily for

sale to customers in the ordinary course

of the dealer’s business, concluding that

the dealer’s “use” of a vehicle as a demonstrator does not constitute “original use”

of the vehicle for the purposes of meeting the original use requirement. Similarly, § 1.163-16(e)(2)(v)(A) (Example 1:

Demonstrator vehicles) of the final regulations addresses how § 1.163-16(e)(1)(i)

and (e)(2) apply when a vehicle is used by

a dealer as a demonstrator vehicle while

primarily being held for sale to customers

in the ordinary course of its trade or business.

Additionally, consistent with proposed

§ 1.163-16(e)(2)(i), § 1.163-16(e)(2)(i)

provides that in the case of any purchaser

that incurs indebtedness for the vehicle

purchase, original use of the vehicle does

not commence with that purchaser unless

the loan documentation treats the vehicle

as a new vehicle. This rule aligns with the

requirement in section 163(h)(4)(D)(i)

that for a vehicle to be an APV, the original use of the vehicle for which indebtedness is incurred must commence with the

taxpayer.

One commenter asked how the proposed original use rule in proposed

§ 1.163-16(e)(2)(i) would apply in the

case of two individuals who purchase a

vehicle when both individuals are listed

on the vehicle’s title and are obligors on

the loan incurred to finance the purchase.

Alternatively, the commenter asked how

the proposed rule applied if the two individuals purchase the vehicle and are obligors on the loan incurred to finance the

purchase, but only one of the individuals

is listed on the title.

The Treasury Department and the IRS

confirm that if a vehicle is purchased by

more than one person, then original use

of that vehicle may commence with each

of these purchasers. Accordingly, § 1.16316(e)(2)(iii) provides that if more than

one person purchases a vehicle and one

of these purchasers is the first person that

takes delivery of the vehicle after the vehicle is sold, registered, or titled, then each

of these purchasers is considered to be the

Bulletin No. 2026–39

first person that takes delivery of the vehicle after the vehicle is sold, registered, or

titled as described in § 1.163-16(e)(2)(i).

Multiple commenters requested clarity

regarding the application of the proposed

original use rule in the case of a leased

vehicle that is eventually purchased by the

lessee.

The Treasury Department and the IRS

understand that leased vehicles are often

purchased by the lessee either during or

at the end of the vehicle lease term. It is

common for original use of a leased vehicle to commence with the lessor, in which

case original use would not commence

with a lessee that purchases the vehicle.

Additionally, if a lessee purchases a vehicle during or at the end of a vehicle lease

term and finances that purchase by incurring a loan, the loan documentation generally does not treat the vehicle as a new

vehicle. As a result, the original use of

the vehicle would not commence with the

lessee under § 1.163-16(e)(1)(i). Section

1.163-16(e)(2)(v)(C) (Example 3: Vehicle purchase following a lease) addresses

how § 1.163-16(e)(1)(i) and (e)(2) apply

when a lessee purchases a vehicle at the

end of the lease term.

Multiple commenters requested clarification regarding whether original use

of a vehicle manufactured in a prior year

but not purchased until a subsequent year

(for example, a 2025 model year vehicle

that was sold to a purchaser that is not a

dealer in 2026 after the manufacturer’s

release of a 2026 model year vehicle) may

commence with the purchaser. The Treasury Department and the IRS confirm that

original use of a vehicle commences with

a taxpayer as described in § 1.163-16(e)

(2), regardless of whether the vehicle was

manufactured in a prior year but not sold

until a subsequent year.

2. Vehicles with Temporary Living

Quarters

One commenter requested clarity

regarding whether a self-propelled vehicle designed to provide temporary living

quarters for recreational, camping, or

seasonal use could be an APV. In order

to be an APV, a vehicle must meet the

requirements to be an APV at the time of

purchase. The Treasury Department and

the IRS confirm that a vehicle that meets

379

the section 163(h)(4)(D) requirements at

the time of purchase will be considered

an APV, regardless of whether the vehicle

was designed to provide temporary living

quarters.

3. Final Assembly

Section 163(h)(4)(D) provides that the

definition of APV does not include any

vehicle the final assembly of which did

not occur within the United States. Section 163(h)(4)(E)(i) provides that, for the

purposes of section 163(h)(4)(D), the term

“final assembly” means the process by

which a manufacturer produces a vehicle

at, or through the use of, a plant, factory,

or other place from which the vehicle is

delivered to a dealer with all component

parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts

are permanently installed in or on the

vehicle. Proposed § 1.163-16(e)(3) provided that, to establish that final assembly

occurred within the United States, the taxpayer may rely on (1) the vehicle’s plant of

manufacture as reported in the VIN under

49 CFR 565; or (2) the final assembly

point reported on the label affixed to the

vehicle as described in 49 CFR 583.5(a)

(3). Further, the preamble to the proposed

regulations provided that taxpayers could

determine whether the vehicle’s plant

of manufacture is located in the United

States by following the instructions on the

National Highway Traffic Safety Administration (NHTSA) VIN Decoder website:

https://www.nhtsa.gov/vin-decoder.

One commenter recommended that

APVs should include all new vehicles

regardless of where the vehicles are manufactured. Another commenter recommended an exemption to the final assembly

requirement for any vehicle manufactured

by certain large U.S. vehicle manufacturers. The Treasury Department and the

IRS do not adopt these recommendations

because section 163(h)(4)(D) explicitly

requires that a vehicle must have undergone final assembly in the United States

to be an APV.

One commenter noted that certain vehicle models with identical specifications

may have undergone final assembly either

in the United States or in other countries.

Accordingly, the commenter recom-

September 21, 2026

mended that the final assembly determination be made at the vehicle make-andmodel level rather than at the VIN level

to ensure taxpayers purchasing the same

model vehicle are not treated differently

under the Code. Alternatively, the commenter recommended that transitional or

safe harbor provisions be considered for

vehicle models that may have undergone

final assembly either in the United States

or in other countries.

The Treasury Department and the

IRS understand that not all vehicles of

the same make and model undergo final

assembly in the same location and where

a vehicle’s final assembly occurred cannot

be determined reliably from its make and

model. For example, the final assembly of

some vehicles of a make and model marketed by a U.S.-headquartered manufacturer may in certain cases have occurred

outside the United States, while some

vehicles of a make and model marketed

by a non-U.S.-headquartered manufacturer may have occurred in the United

States. Nonetheless, section 163(h)(4)

(D) explicitly provides that a vehicle must

have undergone final assembly in the

United States to be an APV. Accordingly,

the Treasury Department and the IRS do

not adopt this commenter’s recommendations.

One commenter noted that it was

unclear what should be done if the NHTSA

VIN Decoder website is unavailable. The

Treasury Department and the IRS note

that reliance on the vehicle’s plant of manufacture as reported in the VIN (which can

be checked on the NHTSA VIN Decoder

website) to establish the location of final

assembly is one non-exclusive option

provided by the IRS for taxpayers’ convenience. A taxpayer may also determine

where a vehicle’s final assembly occurred

by relying on the vehicle’s final assembly

point reported on the label affixed to the

vehicle as described in 49 CFR 583.5(a)

(3), which is sometimes referred to as the

“window sticker.”

taxpayer that incurs indebtedness to purchase an APV is considered to purchase

that APV for personal use if, at the time

the indebtedness is incurred, that taxpayer

expects that the APV will be used for personal use by the taxpayer, the taxpayer’s

spouse, or an individual that is related to

the taxpayer within the meaning of section 152(c)(2) or (d)(2) of the Code, or

any combination of these individuals, for

more than 50 percent of the time.

One commenter asked if the personal

use determination is made annually or

only at the time the vehicle is purchased.

Additionally, multiple commenters asked

whether the personal use determination is

affected by a change in the way a vehicle

is used after the indebtedness is incurred.

The Treasury Department and the IRS

reaffirm that the personal use requirement

in section 163(h)(4) is a requirement that

must be satisfied at the time the indebtedness is incurred, and not an ongoing

requirement. Accordingly, differences

between expected use at the time the

indebtedness is incurred and later actual

use of the vehicle do not affect the personal use determination.

One commenter noted that the proposed

regulations would complicate recordkeeping and the audit process by requiring

taxpayers that use a vehicle for personal

and business purposes to allocate interest

between QPVLI and business interest.

Proposed § 1.163-16(g)(2) provided

that taxpayers may deduct independently

deductible interest (generally, interest that

is QPVLI and that also is deductible as

a different type of interest under section

163(a) or a different section of the Code)

as either QPVLI or as a different type of

interest as described in proposed § 1.16316(g)(1). Accordingly, taxpayers that use

a vehicle for personal and business purposes are not required to allocate interest

between QPVLI and business interest, but

may choose to do so.

F. Personal Use

1. Dollar Limitation

Section 163(h)(4)(B)(i) provides that

QPVLI is interest paid or accrued on

indebtedness incurred by the taxpayer for

the purchase of an APV for personal use.

Proposed § 1.163-16(f)(1) provided that a

Section 163(h)(4)(C)(i) provides that

the deduction allowed for QPVLI by a taxpayer for any taxable year cannot exceed

$10,000. Proposed § 1.163-16(h)(1) provided that the amount taken into account

September 21, 2026

G. QPVLI Limitations

380

as QPVLI by a taxpayer for any taxable

year may not exceed $10,000 per Federal

tax return regardless of filing status.

One commenter requested that the

Treasury Department and the IRS clarify how the rules work if a taxpayer has

multiple SPVLs. The commenter recommended that taxpayers be able to aggregate interest from all SPVLs to determine

QPVLI and apply the $10,000 per return

limit to this total amount.

The Treasury Department and the IRS

clarify that under section 163(h)(4) a taxpayer with multiple SPVLs may aggregate

interest from these loans to determine the

total amount of QPVLI prior to applying

the $10,000 per return limit.

2. Modified Adjusted Gross Income

Phaseout

Section 163(h)(4)(C)(ii) provides

and proposed § 1.163-16(h)(2) provided

that the amount otherwise allowable as a

deduction under section 163(a) as QPVLI

(after the application of the section 163(h)

(4)(C)(i) dollar limitation) is reduced (but

not below zero) by $200 for each $1,000

(or portion thereof) by which the modified adjusted gross income (MAGI) of

the taxpayer for the taxable year exceeds

$100,000. In the case of married taxpayers filing a joint Federal income tax return,

section 163(h)(4)(C)(ii) provides and

proposed § 1.163-16(h)(2) provided that

this reduction begins after the taxpayer’s

MAGI exceeds $200,000.

Multiple commenters requested clarification regarding the application of the

MAGI phaseout to taxpayers that file a

Federal income tax return with a filing

status of head of household. The MAGI

phaseout thresholds for all taxpayers are

explicitly set by section 163(h)(4)(C)(ii),

which provides two specific dollar amount

thresholds: a $200,000 phaseout threshold

applicable to joint filers and a $100,000

phaseout threshold applicable to all other

taxpayers, including taxpayers that have a

filing status of head of household. Accordingly, comments requesting a change in

the phaseout threshold amount for taxpayers that have a filing status of head of

household are not adopted.

Multiple commenters recommended

that final regulations increase the MAGI

phaseout thresholds. One of these com-

Bulletin No. 2026–39

menters requested a separate increased

threshold for taxpayers that file a Federal

income tax return with a filing status of

head of household. The Treasury Department and the IRS decline to adopt these

recommendations because section 163(h)

(4)(C)(ii) explicitly provides the MAGI

phaseout thresholds for all taxpayers.

Multiple commenters recommended

that the MAGI phaseout reduce the

$10,000 annual limitation on QPVLI

under section 163(h)(4)(C)(i), rather than

reduce the amount otherwise deductible

as QPVLI under section 163(a). Section 163(h)(4)(C)(ii) explicitly requires

that the amount otherwise allowable as a

deduction under section 163(a) be reduced

as a taxpayer’s MAGI exceeds the applicable dollar amount thresholds. Accordingly, the Treasury Department and the

IRS do not adopt these recommendations.

H. Taxpayers That May Deduct QPVLI

Section 163(h)(4)(B)(i) provides that

QPVLI is interest paid or accrued on

indebtedness incurred by the taxpayer for

the purchase of an APV for personal use.

Because business entities cannot satisfy

the personal use requirement, proposed

§ 1.163-16(a)(2)(i) provided that only

individuals, decedents’ estates, and nongrantor trusts may deduct QPVLI.

One commenter requested that the

Treasury Department and the IRS clarify

in the final regulations whether nonresident alien individuals may deduct QPVLI.

The commenter noted that section 873(b)

of the Code lists the nonbusiness deductions allowed for nonresident alien individuals and does not include QPVLI in

this list.

The Treasury Department and the IRS

agree with the commenter that clarification

on whether nonresident alien individuals

may deduct QPVLI is needed. With limited

exceptions, a nonresident alien individual

is not allowed deductions that are not connected with income that is effectively connected with the conduct of a U.S. trade or

business. See section 873. Thus, a nonresident alien individual will generally not be

allowed to deduct QPVLI, which relates

to indebtedness incurred to purchase an

APV for personal use. However, in limited circumstances, interest connected

to income that is effectively connected

Bulletin No. 2026–39

with the conduct of a U.S. trade or business will qualify as QPVLI. For example, a nonresident alien individual that

purchases an APV primarily for personal

use may also use the APV as part of his

or her trade or business, and thus may pay

interest that qualifies as QPVLI. See part

II.F (Personal Use) of this Summary of

Comments and Explanation of Revisions.

In that case, the nonresident alien individual would be allowed under § 1.163-16(g)

(2) to deduct the interest connected to

that business as either QPVLI or as business interest expense. This same analysis

would apply to a decedent’s estate that is

a foreign estate or a non-grantor trust that

is a foreign trust, each of which computes

its taxable income in the same manner as

a nonresident alien individual. See section 641(b) of the Code. The Treasury

Department and the IRS intend to modify

the instructions for the relevant forms to

clarify that a nonresident alien individual,

foreign estate, or foreign non-grantor trust

is not allowed to deduct QPVLI, except in

the limited circumstances described in this

paragraph.

One commenter requested that U.S.

citizens residing in the Commonwealth

of Puerto Rico that are required to file a

Federal tax return be allowed to deduct

QPVLI. U.S. citizens residing in the

Commonwealth of Puerto Rico that are

required to file a Federal tax return are

generally entitled to claim deductions to

the extent those deductions are properly

allocated and apportioned pursuant to

the rules under sections 861 and 933 of

the Code and the regulations thereunder.

Accordingly, these taxpayers may be eligible to deduct QPVLI, subject to the allocation and apportionment rules in sections

861 and 933.

One commenter recommended that

individuals with any filing status (including single, married filing jointly, and head

of household) should be able to deduct

QPVLI. The Treasury Department and

the IRS confirm that filing status does not

impact QPVLI deduction eligibility.

III. Comments on Proposed § 1.6050AA-1

A. In General

In order to make the regulations

more readable, the final regulations

381

include two revisions to the proposed

rules that move language from the definitions in § 1.6050AA-1(b) to other

paragraphs in § 1.6050AA-1. First, the

language in proposed § 1.6050AA-1(b)

(3)(ii) (Interest received on behalf of

another person) has been moved to new

§ 1.6050AA-1(c), and the subsequent

paragraphs in § 1.6050AA-1(b) have

been finalized accordingly. Second, the

language in proposed § 1.6050AA-1(b)

(2)(ii) (De minimis rule) and (e) (Amount

of interest received on SPVL for calendar year) have been grouped together in

new § 1.6050AA-1(f)(1) and (2), respectively. As a result, the language in proposed § 1.6050AA-1(b)(2)(i) has been

moved to § 1.6050AA-1(b)(2) and the

heading in proposed § 1.6050AA-1(b)(2)

(i) has been deleted. As discussed more

fully in this part III of the Summary of

Comments and Explanation of Revisions

(Comments on Proposed § 1.6050AA-1),

the substantive contents of these provisions have not been revised in the final

regulations.

B. Definitions

1. Applicable Passenger Vehicle (APV)

Section 6050AA(d)(1) provides that

terms used in section 6050AA have the

same meaning as when used in section

163(h)(4). The term APV is used in section 6050AA(b)(2)(E) and (d)(2). Section

163(h)(4)(D) defines an APV as a vehicle

that satisfies the requirements of section

163(h)(4)(D)(i) through (vi), but excludes

from the definition any vehicle the final

assembly of which did not occur within

the United States.

Proposed § 1.6050AA-1(b)(1) provided that the term “applicable passenger

vehicle” or “APV” has the same meaning

as that provided in section 163(h)(4)(D)

and proposed § 1.163-16(b)(1). Proposed

§ 1.163-16(b)(1) provided that a vehicle

is an “applicable passenger vehicle” or

“APV” if it satisfies the requirements set

forth in proposed § 1.163-16(e)(1). Proposed § 1.163-16(e)(1) further provided

that a vehicle is an APV only if it satisfies

the requirements set forth in section 163(h)

(4)(D). Proposed § 1.163-16(e)(2) and (3),

respectively, provided rules for determining whether original use commences with

September 21, 2026

the taxpayer and whether final assembly

occurred in the United States.

Many commenters expressed general

disapproval of the requirement for interest

recipients to determine if a vehicle is an

APV, a vehicle that satisfies the requirements that are set forth in section 163(h)

(4)(D) and proposed § 1.163-16(b)(1).

These commenters generally claimed that

it would be burdensome for interest recipients to determine if a vehicle is an APV

because interest recipients do not currently

have the information necessary to make

this determination. Specifically, several

commenters claimed that interest recipients do not currently maintain records that

include whether the vehicle’s original use

commences with the borrower, the vehicle’s GVWR, where the vehicle’s final

assembly occurred, or whether the vehicle

satisfies other APV requirements. These

commenters generally recommended that

the final regulations allow interest recipients to report interest on all vehicle loans

and recommended that individual taxpayers seeking to claim the deduction alone

should determine whether their vehicle

qualifies as an APV.

The Treasury Department and the IRS

acknowledge the concerns raised by these

commenters and are aware that interest

recipients may need to collect additional

information to determine whether a vehicle is an APV. However, as a result of the

statutory interaction between sections

6050AA(d)(1) and 163(h)(4)(D), determining whether a vehicle is an APV is

necessary to determine whether reporting

is required under section 6050AA. See

part II.E of this Summary of Comments

and Explanation of Revisions (Applicable Passenger Vehicle (APV)) for a discussion of the regulations under section

163(h)(4)(D). In addition, taxpayers need

the information reported under section

6050AA to accurately complete their

Federal income tax returns. Information

reported on the Form 1098-VLI, Vehicle

Loan Interest Statement, such as the vehicle’s VIN, whether the original use of the

vehicle began with the purchaser (payor

of record), and whether final assembly

occurred in the United States, will enable

taxpayers to accurately claim the QPVLI

deduction.

Several commenters discussed their

concerns about using a vehicle’s VIN to

September 21, 2026

verify where a vehicle’s final assembly

occurred. One commenter indicated that

the commenter understands the vehicle’s

VIN indicates the plant of manufacture;

however, the commenter noted that while

taxpayers and dealers have access to the

vehicle’s window label, the interest recipient may not. One commenter requested

simplified VIN and final assembly verification. Another commenter requested

that the final regulations allow interest

recipients to report the VIN reflected in

their records without requiring the interest

recipients to verify where a vehicle’s final

assembly occurred.

The statutory text of section

6050AA(b)(2)(E) requires interest recipients to report VINs. See part III.F of this

Summary of Comments and Explanation

of Revisions (Requirement to File an

Information Return) for a discussion of

the requirement to report the APV’s VIN.

Although these interest recipients may not

currently have easy access to a VIN, they

must obtain VINs to comply with their

statutory information reporting obligations. Further, the Treasury Department

and the IRS understand the VIN and the

NHTSA VIN lookup tool can be used to

determine whether a vehicle has a GVWR

of less than 14,000 pounds and whether

the final assembly of the vehicle occurred

within the United States. Accordingly, no

changes are made in the final regulations

to the text of proposed § 1.6050AA-1(b)

(1) in response to these comments.

Other commenters requested safe harbor provisions related to the determination of whether a vehicle is an APV. One

commenter requested that the Treasury

Department and the IRS consider including a safe harbor in the final regulations

to allow interest recipients to rely on

dealer or manufacturer data to make the

APV determination. Another commenter

requested that the Treasury Department

and the IRS provide a safe harbor in the

final regulations allowing lenders to rely

on loan documentation and dealer certifications regarding new vehicle status and

original use.

The Treasury Department and the IRS

decline to adopt a safe harbor for interest recipients with respect to determining

whether a vehicle satisfies the requirements of section 163(h)(4)(D). Section

6001 of the Code provides that every per-

382

son liable for tax or the collection thereof

must keep such records, render such statements, make such returns, and comply

with such rules and regulations as may be

prescribed. Under § 1.6001-1(a), any person required to file a return of information

with respect to income must keep such

permanent books of accounts or records

sufficient to establish the matters required

to be shown in any return of such information. This includes all of the information required by section 6050AA, which

is information that lenders can obtain.

The general recordkeeping requirements

require interest recipients to establish the

items required to be shown on the section 6050AA information return. See part

III.B.2 of this Summary of Comments

and Explanation of Revisions (Specified

Passenger Vehicle Loan (SPVL)) for a discussion of interest recipients’ obligations

when the vehicle is refinanced.

2. Specified Passenger Vehicle Loan

(SPVL)

Section 6050AA(d)(2) provides that

the term “specified passenger vehicle

loan” means the indebtedness described in

section 163(h)(4)(B) with respect to any

APV. Proposed § 1.6050AA-1(b)(7) provided that the term “specified passenger

vehicle loan” or “SPVL” has the meaning

provided in proposed § 1.163-16(b)(15).

Proposed § 1.163-16(b)(15) provided

that “specified passenger vehicle loan” or

“SPVL” means indebtedness that satisfies

the requirements set forth in proposed

§ 1.163-16(d)(1). Proposed § 1.163-16(d)

(1) provided that SPVL means indebtedness that is incurred by the taxpayer after

December 31, 2024, for the purchase of,

and that is secured by a first lien on, an

APV for personal use.

Many commenters requested that

the final regulations not require interest

recipients to report interest received on

an SPVL. In general, these commenters requested that the final regulations

require interest recipients to report interest

received on any vehicle loan rather than

only on an SPVL. Most of these commenters claimed interest recipients do not

currently possess sufficient information to

determine whether a loan is an SPVL.

Many commenters indicated that interest recipients do not currently collect or

Bulletin No. 2026–39

maintain information relating to whether

a loan meets the requirements of section

163(h)(4)(B). Some commenters claimed

that specific interest recipients, including

credit unions, do not currently track all

the information necessary to determine

the interest allocable to different components of a vehicle loan. Other commenters claimed that interest recipients do not

currently track interest allocable to negative equity or the amount of nonqualifying

indebtedness.

Some commenters requested that the

final regulations include safe harbors

that would allow the interest recipients

to report interest received on any vehicle

loan rather than the amount of interest

received only on an SPVL. One commenter requested that the final regulations include a safe harbor under which

interest recipients are not required to

allocate interest between qualifying and

non-qualifying portions of the vehicle

loan. Another commenter requested that

the final regulations include a safe harbor allowing interest recipients to provide interest statements to any borrower

who paid $600 or more in interest on a

vehicle-secured loan, accompanied by a

disclaimer.

Some commenters indicated their view

that certain requirements of section 163(h)

(4)(B) are known only to the taxpayer.

Some commenters claimed that only taxpayers are able to know whether the vehicle loan was incurred for the purchase of

an APV for personal use. Others claimed

that vehicle finance companies process

changes of party to vehicle finance contracts from time to time, but do not currently have data regarding whether the

death of the original payor of record is the

reason for such transfer. These commenters generally requested that the final regulations require that the taxpayer, rather

than the interest recipient, be responsible

for determining whether a vehicle loan is

an SPVL.

The statutory language does not support permitting interest recipients to report

interest received on all vehicle loans. Section 6050AA(a) provides that the information return relates to interest received on

an SPVL. Section 6050AA(b)(2) provides

that the information return filed by the

interest recipient must include the amount

of such interest received for the calendar

Bulletin No. 2026–39

year. The interest referred to in section

6050AA(b)(2) is the interest received on

an SPVL. The Treasury Department and

the IRS understand that the definition of

SPVL in § 1.6050AA-1(b)(7) may require

interest recipients to collect information

they do not currently collect. However,

the statute requires reporting of interest

received on an SPVL, not vehicle loan

interest in general.

Several commenters discussed whether

interest recipients can determine whether

a taxpayer expects to use the vehicle for

personal use. One commenter requested

that the final regulations provide an

objective, standardized mechanism for

establishing personal use at origination

that credit unions can document through

ordinary loan records. Another commenter requested that the final regulations

provide that interest recipients need only

rely on the information contained in the

retail installment sales contract. This commenter also requested that the final regulations include a safe harbor regarding the

personal use of the vehicle.

The Treasury Department and the IRS

understand that interest recipients may not

currently have documentation necessary

to determine whether the personal use

requirement is met. While retail installment sales contracts may include some

indication of whether a vehicle is purchased for personal or business use, this

is not true of all such contracts. Further,

even when a contract includes some indication of use, this information may not be

available to assignees of the loan. If the

information in the contract is sufficient

for the interest recipient to determine that

the personal use requirement is met, then,

in the absence of conflicting information,

the interest recipient may rely on that

information. With respect to other contracts, the interest recipient may choose to

make arrangements to obtain information

regarding personal use from the obligor,

from the lender of record, or by other

means. In addition, interest recipients may

rely on the same evidence of personal use

as the obligor.

Several commenters discussed what

they consider to be unique issues when an

SPVL is refinanced. In general, these commenters claimed that interest recipients

after refinancing do not currently have

access to the information needed to verify

383

that the refinanced debt was an SPVL in

the first instance. One commenter noted

that there are currently no reliable mechanisms to confirm whether the borrower

was the original owner during a refinance

transaction or whether a refinanced vehicle was purchased during a qualifying

year.

Some commenters requested that the

final regulations adopt different, specific

reporting requirements when a vehicle-secured loan is refinanced. These commenters claimed that, in a typical vehicle refinance transaction, lenders do not receive

a copy of the prior retail installment sales

contract, and that refinance lenders generally receive limited information. Some

commenters recommended that the final

regulations clarify that interest recipients

may report interest paid on vehicle-secured refinance loans without making

determinations regarding original purchase eligibility and that vehicle eligibility determinations remain solely with the

taxpayer. One commenter requested that

the final regulations allow lenders to treat

the entire refinanced amount as an SPVL,

up to the payoff amount reflected on the

prior lender’s payoff statement, without

ongoing pro rata interest allocation that

lender systems are not currently designed

to perform. Another commenter requested

that the final regulations clarify that, for

purposes of section 6050AA reporting,

interest recipients may rely on a signed

borrower certification of original ownership.

The Treasury Department and the IRS

acknowledge the concerns raised by these

commenters and are aware that interest

recipients may need to collect more information with respect to refinanced vehicle

loans in order to determine whether the

vehicle loan is an SPVL. However, as a

result of the interaction between sections

6050AA(d) and 163(h)(4)(B), determining whether the vehicle loan is an SPVL is

necessary to determine whether reporting

is required under section 6050AA. Section 163(h)(4)(E)(ii) generally provides

that a new loan resulting from refinancing

an SPVL is an SPVL if the new loan is

secured by a first lien on the APV with

respect to which the refinanced SPVL

was incurred, but only to the extent the

amount of the new loan does not exceed

the amount of the refinanced SPVL. The

September 21, 2026

statute does not include separate rules for

reporting interest received on an SPVL

that meets the requirements of section

163(h)(4)(E)(ii). Accordingly, interest

recipients must perform adequate diligence to meet their reporting requirements

for refinanced SPVLs.

Some commenters noted that it would

be useful for the amount of interest

reported under section 6050AA to be the

same as the amount of interest an eligible

borrower would be allowed to deduct. The

Treasury Department and the IRS agree

with these commenters. The Treasury

Department and the IRS acknowledge that

it is not possible for interest recipients to

know whether the amount of the SPVL

is limited by the dollar or MAGI limitations in section 163(h)(4)(C). Therefore,

to minimize the risk of recipients claiming an interest deduction that exceeds the

limitation imposed by section 163(h)(4)

(C), § 1.6050AA-1(h)(2)(iv) requires that

the written statement from the interest

recipient include a legend stating that the

payor of record may be unable to deduct

the full amount of interest reported on the

statement. See part III.G of this Summary

of Comments and Explanation of Revisions (Requirement to Furnish a Written

Statement) for a further discussion of the

legend.

3. Calendar Year

Proposed § 1.6050AA-1(b)(2) provided

that the calendar year for which interest is

received is the later of the calendar year

for which interest is received or the calendar year in which the interest properly

accrues. Proposed § 1.6050AA-1(b)(2)(ii)

permitted an interest recipient to report, as

interest received during the calendar year,

prepaid interest properly accruing by the

following January 15.

One commenter requested guidance

for handling payment reversals that cross

calendar years and other corrections that

occur after year-end processing cutoffs.

The Treasury Department and the IRS

decline to include a rule in the final regulations on how to correct information

returns under section 6050AA. IRS Publication 1099, General Instructions for

Certain Information Returns, includes

information on how to file corrected information returns and interest recipients

September 21, 2026

should use those instructions to determine

how to file any corrected returns.

In order to make the regulations

more readable, however, the language

in proposed § 1.6050AA-1(b)(2)(ii) (De

minimis rule) has been moved to new

§ 1.6050AA-1(f)(1) and the heading has

been updated.

4. Interest Recipient

Proposed § 1.6050AA-1(b)(3) provided that the term “interest recipient”

means a person that is engaged in a trade

or business, whether or not the trade or

business of lending money, and who, in the

course of that trade or business, receives

interest on an SPVL. When a person collects interest on an SPVL on behalf of

another, proposed § 1.6050AA-1(b)(3)(ii)

provided that the person that first receives

the interest generally would be required to

report under proposed § 1.6050AA-1(a),

and no reporting would be required upon

the transfer of the interest from the interest recipient to the person on whose behalf

the interest recipient received the interest.

However, if the initial recipient does not

possess the reporting information for the

borrower and the person on whose behalf

the interest recipient received the interest is engaged in a trade or business and

would receive the interest in the course of

its trade or business if it received the interest directly, proposed § 1.6050AA-1(b)(3)

(ii)(A) would require the person on whose

behalf the interest recipient received the

interest, rather than the initial recipient, to

report.

One commenter requested clarification

regarding which party should be considered the interest recipient in a securitization structure for retail installment sales

contracts. This commenter also requested

confirmation that parties may contractually delegate reporting obligations to

another party and, when a delegation

occurs, clarification of which party bears

the obligation for a given calendar year.

No modifications are needed in the

final regulations to the text of proposed

§ 1.6050AA-1(b)(3) in response to this

comment. Home mortgages have historically been securitized, and the final regulations are similar to the interest recipient

rules for mortgage interest in § 1.6050H1(c). The Treasury Department and the

384

IRS decline to provide an example regarding the specific fact pattern included in the

comment. However, the new examples in

§ 1.6050AA-1(c)(5) generally illustrate

the effect of the definition when a car loan

is securitized.

The Treasury Department and the IRS

understand that when a vehicle loan is

securitized the interest recipient may not

currently have ready access to the information necessary to determine if a vehicle

satisfies the requirements to be an APV, or

information regarding whether a loan is

an SPVL. However, as discussed in parts

III.B.1 and III.B.5 of this Summary of

Comments and Explanation of Revisions

(Applicable Passenger Vehicle (APV) and

Specified Passenger Vehicle Loan (SPVL),

respectively), such determinations are

required by statute.

One commenter requested that the regulations address how reporting obligations

should be satisfied if the interest recipient

enters bankruptcy or is otherwise unable

to report for a calendar year. The Treasury Department and the IRS decline to

address the consequences of bankruptcy

on an interest recipient’s reporting obligation because it is outside the scope of

these regulations.

To make the regulations more readable,

the language in proposed § 1.6050AA-1(b)

(3)(ii) (Interest received on behalf of

another person) has been moved to new

§ 1.6050AA-1(c). As a result, the language

in proposed § 1.6050AA-1(b)(3)(i) has

been moved to § 1.6050AA-1(b)(3) and

the heading in proposed § 1.6050AA-1(b)

(3)(i) has been deleted. In addition, the

new examples in § 1.6050AA-1(c)(5)

illustrate the reporting obligation when

a person collects interest on an SPVL on

behalf of another when a car loan is securitized.

5. Payor of Record

Proposed § 1.6050AA-1(b)(5) defined

a “payor of record” on an SPVL as any person carried on the books and records of the

interest recipient as the principal borrower

on the SPVL. As a result of the interaction

between proposed § 1.6050AA-1(b)(5)

and (a)(2), only the payor of record would

be furnished a written statement on the

SPVL under proposed § 1.6050AA-1(a)

(2)(ii). Proposed § 1.6050AA-1(b)(5) also

Bulletin No. 2026–39

provided that the term “person” for the

purposes of proposed § 1.6050AA-1(b)(5)

means any individual, decedent’s estate,

or non-grantor trust.

One commenter supported the proposed definition of payor of record. This

commenter requested confirmation that

only one written statement per SPVL per

year is required and acceptable, even if

the loan has more than one borrower. The

Treasury Department and the IRS confirm

that as a result of the interaction between

§ 1.6050AA-1(b)(5) and (a)(2), when

there are co-borrowers on an SPVL, only

the payor of record is required to be furnished a written statement on the SPVL

under § 1.6050AA-1(a)(2)(ii).

Another commenter requested clarification on what, if any, reporting obligations exist when the borrower is deceased

at the time of the filing deadline. This

commenter requested that the final regulations include guidance confirming that

the interest recipient may rely on available public records, correspondence, or

obligor account status indicators to determine whether to furnish a statement and

that furnishing to the estate or co-obligor

would satisfy the furnishing requirement.

No modifications are needed in the

final regulations to the text used in proposed § 1.6050AA-1(b)(5). As a result of

the interaction between § 1.6050AA-1(b)

(5) and (a)(2), only the payor of record

would be furnished a written statement on

the SPVL under § 1.6050AA-1(a)(2)(ii).

The payor of record on the SPVL can be

a decedent’s estate, and the death of the

borrower does not eliminate the statutory

reporting requirement.

C. Reporting by a Foreign Person

Under proposed § 1.6050AA-1(c)(1),

an interest recipient that is a foreign person

would be required to report with respect

to interest received on an SPVL to the

extent such interest is received at a location in the United States. Under proposed

§ 1.6050AA-1(c)(2), an interest recipient

that is a foreign person and receives interest at locations outside the United States

would be required to report only if the

foreign person is a controlled foreign corporation (as defined in section 957(a) of

the Code) or if 50 percent or more of the

foreign person’s gross income was effec-

Bulletin No. 2026–39

tively connected with the conduct of a

trade or business within the United States.

One comment requested guidance

regarding the information reporting obligations of foreign persons holding securitized interests in a vehicle loan. The

Treasury Department and the IRS do not

believe it is necessary to provide any

additional clarification in response to this

comment because foreign persons holding securitized interests in a vehicle loan

with reporting obligations under section

6050AA are subject to the same requirements as domestic interest recipients holding securitized interests in a vehicle loan.

D. Reporting with Respect to a

Nonresident Alien Individual, Foreign

Decedent’s Estate, or Foreign NonGrantor Trust

Proposed § 1.6050AA-1(d)(1) provided that the reporting requirement of

section 6050AA does not apply if the

payor of record is a nonresident alien,

foreign decedent’s estate, or foreign nongrantor trust. Proposed § 1.6050AA-1(d)

(2) provided the documentation rules that

the interest recipient is required to follow

to determine whether the payor of record

is a nonresident alien individual, foreign

decedent’s estate, or foreign non-grantor

trust.

Some commenters requested changes

to proposed § 1.6050AA-1(d)(1) in

the final regulations. One commenter

requested specific language in the final

regulations noting that the payor of record

is presumed to be a U.S. person for section

6050AA purposes. Another commenter

claimed that vehicle finance companies

do not necessarily have data regarding the

legal status of customers and requested

that proposed § 1.6050AA-1(d)(2) and

(3) be deleted in the final regulations so

that finance companies are not required to

determine the legal status of the payor of

record.

The Treasury Department and the

IRS understand the concern that vehicle

finance companies may not currently have

the documentation necessary to determine

whether a particular payor of record is a

nonresident alien individual, foreign decedent’s estate, or foreign non-grantor trust.

However, the documentation rules that the

interest recipient is required to follow are

385

similar to the longstanding rules applicable to nonresident alien individuals who

pay mortgage interest in § 1.6050H-1(d)

(2). Accordingly, the Treasury Department and the IRS decline to modify the

reporting requirement of section 6050AA

in the case of a payor of record that is a

nonresident alien individual, foreign decedent’s estate, or foreign non-grantor trust.

E. Amount of Interest Received on an

SPVL for the Calendar Year

Under proposed § 1.6050AA-1(e),

whether an interest recipient receives $600

or more of interest on an SPVL would be

determined on an SPVL-by-SPVL basis.

To make the regulations easier to read, the

language in proposed § 1.6050AA-1(b)

(2)(ii) (De minimis rule) and (e) (Amount

of interest received on SPVL for calendar

year) have been grouped together in new

§ 1.6050AA-1(f)(1) and (2), respectively,

and new headings have been added to

the paragraphs. The contents of proposed

§ 1.6050AA-1(e) have not been changed.

F. Requirement to File an Information

Return

Section 6050AA(b) provides that the

information return filed by the interest

recipient must be in the form prescribed

by the Secretary and must contain: (A) the

name and address of the individual from

whom such interest was received, (B) the

amount of such interest received for the

calendar year, (C) the amount of outstanding principal on the SPVL as of the beginning of such calendar year, (D) the date

of origination of that loan, (E) the year,

make, model, and VIN of the APV that

secures that loan (or such other description of that vehicle as the Secretary may

prescribe), and (F) any other information

as the Secretary may prescribe.

Under proposed § 1.6050AA-1(f), the

interest recipient would be required to file

a form designated by the Secretary that

contains: (i) the name, address, and taxpayer identification number of the payor

of record; (ii) the name, address, and taxpayer identification number of the interest recipient; (iii) the amount of interest

received for the calendar year; (iv) the

amount of outstanding principal on the

SPVL as of the beginning of such cal-

September 21, 2026

endar year; (v) the date of origination of

such loan; (vi) the year, make, model, and

VIN of the APV that secures such loan;

(vii) the date the SPVL was acquired; and

(viii) any other information required by

the form or its instructions.

Some commenters discussed the

requirement to file an information return

with the IRS. One commenter recommended allowing interest recipients

to submit a single information return

detailing all SPVL transactions for the

reporting period. Another commenter

noted the requirement to report the VIN,

year, make, model, loan origination date,

acquisition date, outstanding principal

balances, and lien status would require

system modifications. Other commenters claimed that interest recipients may

experience difficulties accurately reporting the VIN. One commenter recommended that the final regulations provide

a safe harbor for minor clerical errors in

VIN reporting.

The Treasury Department and the IRS

decline to change the requirement for

interest recipients to file a return with the

IRS for each SPVL, as this is expressly

required by sections 6050AA(a) and

6724(d)(1)(B). The items in proposed

§ 1.6050AA-1(f) generally followed the

items prescribed in section 6050AA(b)

(2). The Treasury Department and the

IRS understand that interest recipients

may not currently track the VIN associated with the vehicle. Section 6050AA(b)

(2)(E) requires the interest recipient to

report the VIN of the APV that secures

the loan on which interest is received.

The Treasury Department and the IRS

cannot modify this statutory requirement;

in addition, an accurate VIN will enable

the interest recipients and the IRS to verify other statutorily mandated information. See part III.B.1 of this Summary of

Comments and Explanation of Revisions

(Applicable Passenger Vehicle (APV))

for a discussion of how to determine if a

vehicle is an APV.

One commenter requested clarification that the “date acquired” information

ensures that the taxpayer can consolidate

multiple information returns when there

are multiple interest recipients for the

same SPVL during the same calendar

year. The Treasury Department and the

IRS understand SPVLs may be sold or

September 21, 2026

otherwise transferred to a new lender of

record during the calendar year. The Treasury Department and the IRS confirm that

the date acquired information provides

the taxpayer with information regarding

which period is covered by each information return rather than requiring consolidated reporting by multiple interest recipients.

G. Requirement to Furnish a Written

Statement

Section 6050AA(c) provides that

every person required to make an information return under section 6050AA(a)

must also furnish to each individual

whose name is required to be included

in the return a written statement showing

the name, address, and phone number of

the information contact of the interest

recipient, and the information required

to be included in the information return

under section 6050AA(b)(2)(B) through

(F).

Proposed § 1.6050AA-1(g) would

require the interest recipient that would

be required to file a return under proposed § 1.6050AA-1(a) to furnish a

statement to the payor of record. Under

proposed § 1.6050AA-1(g), the recipient would be the payor of record and the

written statement would be required to

include the information that was reported

on the form designated for this purpose.

In addition, the written statement would

be required to include a legend identifying the statement as important tax information that is being furnished to the IRS

and stating that penalties may apply if the

payor of record overstates a deduction

for interest reported on the statement.

Proposed § 1.6050AA-1(g)(2)(ii) would

also require that the written statement

include a legend stating that the payor of

record may be unable to deduct the full

amount of SPVL interest reported on the

statement.

Several commenters claimed the interest recipients should not be required to

furnish a written statement to the payor of

record. In general, these commenters recommended allowing the interest recipient

to provide the amount of interest received

to the payor of record either on a monthly

statement or via an online portal, similar

to the requirements of Notice 2025-57.

386

The Treasury Department and the IRS

decline to change the requirement to furnish a statement to the payor of record,

as this is expressly required by sections

6050AA(c) and 6724(d)(2)(MM).

Many commenters recommended that

the Treasury Department and the IRS

confirm that the taxpayer has the ultimate

responsibility for determining whether

and to what extent the taxpayer is able to

claim the deduction allowed under section 163(h)(4). The Treasury Department

and the IRS confirm the taxpayer has the

ultimate responsibility for deductions

claimed on the taxpayer’s Federal income

tax return. To minimize the risk of recipients claiming an interest deduction that

is limited by section 163(h)(4)(C) or for

which they are otherwise ineligible, the

written statement must include a legend

providing certain information.

Some commenters discussed the legend

described in proposed § 1.6050AA-1(g)

(2)(iii). One commenter stated that the

legend is quite lengthy and might be

improved if simplified. Two commenters

expressed concern that the legend inappropriately deputizes the interest recipient

as an enforcement authority or tax deduction eligibility auditor.

The Treasury Department and the IRS

decline to make any changes to the legend

in response to these comments. The legend described in § 1.6050AA-1(h)(2)(iii)

is similar to the legend required on written

statements reporting mortgage interest in

§ 1.6050H-2(b)(2)(ii) and (iii). The use of

similar language is helpful to taxpayers

and minimizes the risk of recipients being

confused by any differences between the

two forms. Finally, the legend reinforces

the principle that it is the taxpayer who

must make the final decision on whether

and how much to claim as a deduction on

the tax return.

One commenter recommended that an

option to provide an electronic statement

to the payor be added to the final regulations. Another commenter recommended

that the final regulations clarify that the

written statement can be sent in an electronic form if the payor of record has

consented to receiving disclosures electronically under the Electronic Signatures

in Global and National Commerce Act

(E-SIGN Act), Public Law 106-229, 114

Stat. 464 (June 30, 2000).

Bulletin No. 2026–39

The Treasury Department and the

IRS decline to modify the rules regarding the electronic furnishing of certain

payee statements because they are outside the scope of these regulations. The

revenue procedure relating to electronic

furnishing of certain payee statements is

generally updated annually and is also

reproduced as IRS Publication 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, and

Certain Other Information Returns. See

Rev. Proc. 2025-22, 2025-30 I.R.B. 200,

and Publication 1179 published July 21,

2025. The Treasury Department and the

IRS emphasize that interest recipients can

utilize existing procedures for electronic

furnishing of the payee statement. Interest

recipients can also provide comments on

Notice 2026-4, which requests comments

on whether the Treasury Department and

the IRS should modify the electronic furnishing requirements applicable to persons required to furnish payee statements.

See Notice 2026-4, 2026-13 I.R.B. 726

(March 23, 2026).

H. Transition Relief

Several commenters recommended

that the Treasury Department and the

IRS extend the transition relief provided

in Notice 2025-57. Other commenters

recommended that the final regulations

include a phased implementation timeline.

The OBBBA was signed into law

on July 4, 2025. Section 163(h)(4), as

amended, and new section 6050AA apply

to indebtedness incurred after December

31, 2024. The statute provides for reporting related to indebtedness incurred

prior to the enactment of the OBBBA.

The Treasury Department and the IRS

understand that recipients needed time

to make the necessary changes to their

systems to comply with their new information reporting responsibility under

section 6050AA. In Notice 2025-57, the

Treasury Department and the IRS provided transitional guidance with respect

to the reporting obligations under section 6050AA with regard to interest that

the recipient received on an SPVL in

calendar year 2025. However, taxpayers need the information reported under

section 6050AA to complete their personal income tax returns, and interest

Bulletin No. 2026–39

recipients will have had approximately

18 months from the enactment of the

OBBBA to the time that they will need to

begin reporting under section 6050AA.

Therefore, the Treasury Department and

the IRS are not including additional transitional guidance or phased implementation in the final regulations.

Some commenters requested penalty

relief for good-faith efforts made by interest recipients or reasonable cause relief

during the initial compliance period.

Another commenter requested that the

Treasury Department and IRS clarify

whether reasonable cause relief would

apply when the interest recipient lacks

access to necessary data despite commercially reasonable efforts. In the refinance

context, one commenter requested confirmation that an interest recipient would

not be penalized for relying in good faith

on its books and records for identifying

the payor of record and the information

available to it in connection with refinancing, including borrower attestations

and payoff documentation from the prior

lender.

Section 6721 imposes a penalty for

any failure to file an information return on

or before the required filing date, and for

any failure to include all the information

required to be shown on a return or the

inclusion of incorrect information. Section

6722 imposes a penalty for any failure to

furnish a payee statement on or before the

required furnishing date to the person to

whom such statement is required to be furnished, and for any failure to include all

the information required to be shown on a

payee statement or the inclusion of incorrect information. Section 6724(a) provides

that no penalty may be imposed under sections 6721 and 6722 if it is shown that any

such failure was due to reasonable cause

and not willful neglect. The Treasury

Department and the IRS have determined

that providing additional safe harbors or

reasonable cause relief is unnecessary in

light of the statutory provision in section

6724(a).

One commenter requested clarification

on the interaction between the applicability date included in the final regulations and Notice 2025-57. The Treasury

Department and the IRS confirm that an

interest recipient may satisfy the reporting obligations under section 6050AA for

387

interest received in calendar year 2025 by

satisfying the reporting obligations under

section 6050AA for calendar year 2025 as

described in Notice 2025-57.

I. Miscellaneous

A couple of commenters discussed

recordkeeping requirements. One commenter requested additional clarification on the recordkeeping and reporting

requirements for taxpayers. Another commenter recommended adding a specific

record retention requirement for recipients of interest to the final regulations in

§ 1.6050AA-1.

Taxpayers are required to maintain

records that are sufficient to enable the

IRS to determine their correct tax liabilities. See section 6011 and § 1.6001-1(a).

The Treasury Department and the IRS

have determined that providing additional

record retention requirements for taxpayers is both unnecessary and outside the

scope of these regulations. With respect to

the information returns required by section

6050AA, it is unnecessary to prescribe

specific recordkeeping requirements

because § 1.6050AA-1(g)(2) prescribes

the information that must be reported by

interest recipients.

IV. Explanation of Revisions to Proposed

§§ 301.6011-2, 301.6721-1, and

301.6722-1

The final regulations include a revision

to proposed § 301.6011-2 to reflect that

Form 1098-VLI is used to report information required under section 6050AA. The

final regulations also include revisions to

proposed §§ 301.6721-1 and 301.6722-1

that are necessary as a result of correcting

amendments to TD 9991, 91 FR 13220,

published March 19, 2026. The language

in proposed § 301.6721-1(j)(2) and (j)(2)

(i) and proposed § 301.6722-1(g)(2) and

(g)(2)(i) were published in the correcting amendments to TD 9991 and are not

republished in the final regulations. The

language in proposed § 301.6721-1(j)(2)

(ii) has been moved to § 301.6721-1(j)

(2)(iii). Second, the language in proposed

§ 301.6722-1(g)(2)(ii) has been moved to

§ 301.6722-1(g)(2)(iii). The contents of

these provisions are not being revised in

the final regulations.

September 21, 2026

Special Analyses

I. Regulatory Planning and Review—

Economic Analysis

Executive Orders 12866 and 13563

direct agencies to assess costs and benefits of available regulatory alternatives

and, if regulation is necessary, to select

regulatory approaches that maximize net

benefits (including potential economic,

environmental, public health and safety

effects, distributive impacts, and equity).

Executive Order 13563 emphasizes the

importance of quantifying both costs and

benefits, reducing costs, harmonizing

rules, and promoting flexibility.

The final regulations have been designated by the Office of Management and

Budget’s (OMB’s) Office of Information and Regulatory Affairs (OIRA) as

subject to review under Executive Order

12866 pursuant to the Memorandum of

Agreement (MOA, July 4, 2025) between

the Treasury Department and the Office

of Management and Budget regarding

review of tax regulations. OIRA has determined that the final rulemaking is significant under section 3(f)(1) of Executive

Order 12866 and subject to review under

Executive Order 12866 and section 1(b)

of the MOA. Accordingly, the final regulations have been reviewed by OMB.

This final rule is expected to be an

Executive Order 14192 regulatory action.

Need for Regulation

Section 70203 of Public Law 119-21,

139 Stat. 72 (July 4, 2025), commonly

known as the One, Big, Beautiful Bill

Act (OBBBA), amends section 163(h)

of the Internal Revenue Code2 to provide

a newly allowable income tax deduction for qualified passenger vehicle loan

interest (QPVLI). In the absence of regulations, taxpayers would face substantial uncertainty about which vehicle loan

interest is eligible for the deduction. The

OBBBA also establishes section 6050AA

of the Code to require interest recipients

receiving at least $600 of interest on a

specified passenger vehicle loan (SPVL)

2

within a calendar year to file an information return with the Internal Revenue

Service (IRS) and furnish a statement to

the payor of record. In the absence of

guidance, interest recipients would face

uncertainty about how to comply with the

requirements.

The final regulations clarify the statute

for taxpayers and lenders, including by:

defining “personal use” and providing a

standard for “personal use” of a vehicle;

clarifying the requirements for interest to

be QPVLI; clarifying the requirements

for indebtedness to be an SPVL; defining “indebtedness incurred for the purchase of an applicable passenger vehicle”

to include the cost of warranties, service

plans, and other amounts customarily

financed in a vehicle purchase transaction

that are directly related to the purchased

vehicle; establishing which information

must be reported by lenders to comply

with the information reporting requirements; clarifying that the deduction is

limited to $10,000 per return, regardless

of the taxpayer’s filing status; providing rules for determining whether “final

assembly” of a vehicle occurred in the

United States; and offering further definitions and clarifications of terms in section

163(h)(4) and section 6050AA, such as

the vehicle identification number (VIN).

I. The Statute and Final Regulations

Under section 163(h)(1), certain taxpayers cannot deduct personal interest

paid or accrued during the taxable year.

Section 70203(a) of the OBBBA adds a

new section 163(h)(4) to the Code. Section

163(h)(4)(A) provides that, in the case of

taxable years beginning after December

31, 2024, and before January 1, 2029,

personal interest does not include QPVLI.

This allows taxpayers to deduct QPVLI

for taxable years beginning after December 31, 2024, and before January 1, 2029.

Section 163(h)(4)(B) defines QPVLI as

any interest that is paid or accrued during

the taxable year on indebtedness incurred

by the taxpayer after December 31, 2024,

for the purchase of, and that is secured

by a first lien on, an applicable passenger

vehicle (APV) for personal use. Section

163(h)(4)(B) also includes exceptions to

QPVLI, such as financing for commercial

vehicles or lease financing, and a requirement for taxpayers to include the VIN of

the APV on the tax return in order to claim

the deduction.

The final regulations provide definitions and clarifications of terms related to

QPVLI in section 163(h)(4) and section

6050AA. The final regulations clarify

that individuals, decedents’ estates, and

non-grantor trusts may deduct QPVLI.

The final regulations provide that interest is only QPVLI if the interest is paid

or accrued during the taxable year on

indebtedness that is an SPVL secured by

a first lien on an APV and is not otherwise

excluded from the definition of QPVLI.

The final regulations adopt a standard for

personal use that provides that a taxpayer

is considered to purchase an APV for personal use if, at the time the indebtedness

is incurred, the taxpayer expects that the

APV will be used for personal use by the

taxpayer, the taxpayer’s spouse, or an

individual that is related to the taxpayer

within the meaning of section 152(c)(2)

or (d)(2) of the Code, or any combination

of these individuals, for more than 50 percent of the time the taxpayer expects to

own the APV. The 50 percent threshold is

intended to correspond to a vehicle being

predominantly used for “personal use”

within the meaning of section 163(h)(4)

(B)(i) while still allowing taxpayers with

considerable non-personal use to benefit from the deduction. If the taxpayer is

a decedent’s estate or non-grantor trust,

personal use is tested based on the use by

legatees or heirs, or beneficiaries, respectively. Further, under the final regulations,

the taxpayer is not required to reevaluate

compliance with the personal use standard in taxable years after the indebtedness is incurred. The final regulations also

clarify that taxpayers may not deduct the

same interest as both QPVLI and otherwise deductible interest (such as a business interest expense) and that taxpayers

must report certain information relating to

vehicle interest deducted independent of

QPVLI.

References to a “section” are to a section of the Internal Revenue Code of 1986, as amended (Code), unless otherwise indicated.

September 21, 2026

388

Bulletin No. 2026–39

Typical auto loan sales contracts

indicate an “amount financed” that may

include property and services in addition

to the amount for the price of the vehicle. The final regulations provide that

indebtedness incurred for the purchase

of an APV as well as for certain items or

amounts customarily financed in an APV

purchase transaction that are directly

related to the purchased APV is an SPVL

and therefore interest paid or accrued on

such indebtedness is potentially eligible to be deducted. The final regulations

describe certain items and services that

are considered customarily financed in

an APV purchase transaction that are

directly related to the purchased APV,

such as vehicle service plans, extended

warranties, sales taxes, and vehicle-related fees. Indebtedness not incurred for

the purchase of an APV nor for any other

items or amounts customarily financed

in an APV purchase transaction that are

directly related to the purchased APV is

not an SPVL, and, therefore, interest paid

or accrued on such indebtedness is not

QPVLI. For example, to the extent that a

taxpayer incurs indebtedness to purchase

collision and liability insurance that is

not a credit insurance product or to purchase any property or services unrelated

to the vehicle (for example, a trailer or a

boat), that indebtedness is not an SPVL,

and, therefore, interest paid or accrued on

that indebtedness is not QPVLI.

Section 163(h)(4)(C) establishes limitations on the amount of QPVLI that a

taxpayer may deduct. The dollar limit is

$10,000 per taxable year. The final regulations clarify that this limit applies

regardless of the taxpayer’s filing status for that taxable year. Additionally,

under section 163(h)(4)(C)(ii)(I), the

deduction for QPVLI is reduced (but not

below zero) by $200 for each $1,000 (or

portion thereof) by which the taxpayer’s

modified adjusted gross income (MAGI)

exceeds $100,000 ($200,000 in the case

of a married couple filing a joint return).

Section 163(h)(4)(C)(ii)(II) defines

“modified adjusted gross income” for

the purposes of this phaseout as adjusted

gross income of the taxpayer for the taxable year plus any amount excluded from

gross income under sections 911, 931, or

933 of the Code. The final regulations

clarify that for estates and non-grantor

Bulletin No. 2026–39

trusts, the MAGI phaseout is applied to

the estate or trust, not with respect to the

beneficiaries of the estate or trust; and

for estates and non-grantor trusts, MAGI

means AGI as defined in section 67(e) of

the Code.

Section 163(h)(4)(D) defines the term

“applicable passenger vehicle.” The criteria for an APV include that its original

use must commence with the taxpayer

and that its final assembly must have

occurred in the United States. The final

regulations provide rules for determining

whether original use of a vehicle begins

with the taxpayer, rules for whether a

vehicle’s final assembly occurred in the

United States, and definitions for other

APV-related terms used in the statute.

Original use generally commences with

the first person that takes delivery of a

vehicle after the vehicle is sold, registered, or titled. For purchasers that incur

indebtedness to purchase a vehicle, original use does not commence with the

taxpayer unless the loan documentation

treats the vehicle as a new vehicle. The

final regulations provide that taxpayers can determine the location of final

assembly by (1) the plant of manufacture as reported in the VIN or (2) the

final assembly point reported on the label

affixed to the vehicle.

Section 163(h)(4)(E) provides other

definitions and special rules. These

include the treatment of refinancing and of

indebtedness owed to related parties. The

final regulations clarify that for refinanced

loans, the amount of the new loan on

which interest may be considered QPVLI

is limited to the outstanding balance of the

refinanced loan as of the date of the refinancing.

Section 70203(b) of the OBBBA

amends section 63(b) of the Code so that

the deduction for QPVLI is allowed for

taxpayers who do not elect to itemize their

deductions. The final regulations clarify

that the deduction is available to taxpayers

who itemize their deductions and to taxpayers who claim the standard deduction.

Section 70203(c) of the OBBBA

adds a new section 6050AA to the Code

that establishes information reporting

requirements for vehicle loan interest.

Any person who, in the course of a trade

or business, receives from any individual more than $600 in a calendar year on

389

an SPVL must provide an information

return to the IRS and furnish a statement

to the payor of record. The final regulations provide operational definitions and

rules for complying with the information

reporting requirements. The final regulations clarify the need to report the date

the SPVL was acquired; require that the

statement to the payor of record includes

a legend clarifying that the taxpayer may

be unable to deduct the full amount of

interest shown on the statement; and offer

guidance on reporting by and to certain

foreign persons. To prevent duplicate

reporting, the final regulations also provide that if an interest recipient’s records

for a loan do not indicate which borrower

is the principal borrower, the interest

recipient must designate a principal borrower. This follows established practice

with respect to information reporting

requirements for qualified residence

interest.

II. Baseline

The Treasury Department and the IRS

have assessed the benefits and costs of

the final regulations relative to a no-action baseline reflecting anticipated Federal income tax-related behavior in the

absence of the final regulations.

III. Affected Entities and Taxpayers

The final regulations affect individuals, decedents’ estates, and non-grantor

trusts that may deduct QPVLI, and also

affect any person engaged in a trade or

business, who, in the course of that trade

or business, receives interest aggregating $600 or more for any calendar year

on an SPVL and is therefore subject to

certain information reporting requirements. As described in the preamble to

the final regulations, interest recipients

receiving less than $600 of interest on an

SPVL have the option to provide information returns.

Under section 163(h)(4), the deduction is limited to interest on loans for

vehicles with final assembly occurring in

the U.S. whose original use commences

with the taxpayer. The Treasury Department and the IRS estimate that in 2024,

roughly 6 million loans originated on

new U.S.-assembled vehicles. See Table

September 21, 2026

A. Retail sales of new light vehicles

in the U.S. totaled about 16 million in

20243; roughly 60 percent of new vehicle purchases are financed with loans4;

and analysis of vehicle model sales data

suggests that about 60 percent of vehicles sold in the U.S. undergo U.S. final

assembly. The Treasury Department and

the IRS do not have an estimate of the

number of decedents’ estates and nongrantor trusts that are obligors on vehicle loans.

Table A: Estimated Annual Loans on New U.S.-assembled Vehicles

1. 2024 U.S. new light vehicle sales

16 million

2. Share of new vehicle sales financed with loans

60 percent

3. Of new vehicles sold, share with U.S. final assembly

60 percent

4. Estimated annual loans on new vehicles with U.S. final assembly

Approximately 6 million

Notes: Row 4 is the rounded product of rows 1, 2, and 3.

Sources: “Light vehicle retail sales in the United States from 1976 to 2024,” Statista, last accessed October 27, 2025, https://

www.statista.com/statistics/199983/us-vehicle-sales-since-1951/; https://www.bts.gov/content/new-and-used-passenger-carsales-and-leases-thousands-vehicles; “New and used passenger car and light truck sales and leases,” Bureau of Transportation

Statistics, last accessed October 27, 2025, https://www.bts.gov/content/new-and-used-passenger-car-sales-and-leases-thousandsvehicles; “State of the Automotive Finance Market Report: Q2 2025,” Experian, last accessed October 27, 2025, https://www.

experian.com/automotive/auto-credit-webinar-form; manufacturer vehicle model sales data.

To identify the number of businesses

that the final regulations are expected to

affect, the Treasury Department and the

IRS analyzed confidential tax return data.

For tax year 2023, approximately 36,000

businesses filed a tax return with North

American Industry Classification System (NAICS) codes for new car dealers

(code 441110), motorcycle dealers (code

441227), car loan lenders (code 522220),

and consumer lending (code 522291).

See Table B. This total does not include

used car dealers because the statute and

regulations only apply to loans for new

vehicles.

Table B: Estimated Number of Affected Businesses by NAICS Code

New car dealers (441110)

17,800

Motorcycle dealers (441227)

4,100

Car loan lenders (522220)

5,800

Consumer lending (522291)

8,100

Total

35,800

Notes: The table shows counts of tax year 2023 filers of forms 1065, 1120S, or 1120. NAICS codes appear in parentheses.

Source: Treasury Department analysis of confidential tax return data, October 24, 2025.

IV. Economic Effects of the Final

Regulations

The final regulations clarify the statute and facilitate taxpayers claiming the

QPVLI deduction. Consider, for example, a taxpayer who is purchasing a vehicle. For most people, a vehicle is a major

purchase, and there are many elements to

be considered along the way, including

choices between a new versus used vehicle, a U.S.-assembled versus foreign-assembled vehicle, and a cash purchase ver-

sus a loan or a lease. With the introduction

of the deduction for QPVLI, the taxpayer

now faces questions about whether and

how the statute interacts with the vehicle and financing choices they make. For

instance, in the absence of guidance, the

taxpayer may not know whether their

expected personal use of the vehicle is sufficient to claim the deduction or whether a

vehicle meets the standard for U.S.-final

assembly.

The final rules assist the taxpayer in

understanding and claiming the QPVLI

deduction. For example, the final regulations direct taxpayers to the National

Highway Traffic Safety Administration

(NHTSA) VIN Decoder website to determine whether a vehicle underwent final

assembly in the United States, a necessary

condition for the vehicle loan interest to

be eligible for the deduction. By facilitating taxpayers’ understanding of which

vehicles are American made and an APV

under the statute, the final regulations

reduce taxpayer compliance burden and,

as a result, may also increase consumer

3

“Light vehicle retail sales in the United States from 1976 to 2024,” Statista, last accessed October 27, 2025, https://www.statista.com/statistics/199983/us-vehicle-sales-since-1951/; https://

www.bts.gov/content/new-and-used-passenger-car-sales-and-leases-thousands-vehicles; “New and used passenger car and light truck sales and leases,” Bureau of Transportation Statistics,

last accessed October 27, 2025, https://www.bts.gov/content/new-and-used-passenger-car-sales-and-leases-thousands-vehicles. The 16 million total transactions (row 1 of Table A) includes

leases; the share of new vehicle transactions financed with a loan (row 2 of Table A), used to estimate the number of loans on new U.S.-assembled vehicles, excludes leases.

4

“State of the Automotive Finance Market Report: Q2 2025,” Experian, last accessed October 27, 2025, https://www.experian.com/automotive/auto-credit-webinar-form; “New and used

passenger car and light truck sales and leases,” Bureau of Transportation Statistics, last accessed October 27, 2025, https://www.bts.gov/content/new-and-used-passenger-car-sales-and-leases-thousands-vehicles.

September 21, 2026

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Bulletin No. 2026–39

demand for APVs and SPVLs, namely

loans for new U.S.-assembled vehicles.

The Treasury Department and the IRS

do not have readily available parameters

and models to quantify the extent of this

increase in demand for U.S. assembled

vehicles or debt financing. The following sections describe in further detail the

potential economic impacts of specific

elements of the final regulations

a. Personal Use Standard

Section 163(h)(4) limits the deduction

to vehicles purchased for personal use.

The final regulations provide a standard

for personal use. To meet the standard, the

taxpayer must expect at the time of purchase that the APV will be used for personal use for more than 50 percent of the

time the taxpayer expects to own the APV.

An alternative standard of personal use

could have required mostly or exclusively

personal use of a vehicle for loan interest

to be considered QPVLI.

The 50 percent personal use standard benefits taxpayers who debt-finance

mixed-use vehicles who would be disallowed from taking the deduction for

QPVLI under stricter, alternative standards. Interest on a vehicle loan that is

properly allocable to a trade or business is

generally deductible under section 163(a).

Consider, for example, a taxpayer who

finances the purchase of an APV expecting for 60 percent of use to be for personal

use and 40 percent for use in a trade or

business. Assume for a given tax year the

taxpayer pays $3,500 in interest on the

vehicle loan, drives the vehicle 55 percent

for personal use and 45 percent for use in

a trade or business, and meets all other

requirements to deduct QPVLI and interest properly allocable to a trade or business. (Note that 55 percent personal use

for this tax year differs somewhat from the

taxpayer’s expected 60 percent personal

use over the cumulative time the taxpayer

expects to own the vehicle.) Under a strict

personal use standard for QPVLI, such

as exclusive personal use, the taxpayer

would be prohibited from deducting any

interest as QPVLI, and would only be

able to deduct the interest attributable to

use in a trade or business ($1,575, equal

to 45 percent of the $3,500 of interest

paid during the year), provided all of the

other requirements for deducting interest

properly allocable to a trade or business

are met. Under the 50 percent personal

use standard, the taxpayer can potentially

deduct all $3,500 in interest as QPVLI.

Alternatively, the taxpayer would have

discretion to deduct $1,575 (45 percent of

$3,500) as interest properly allocable to

a trade or business and $1,925 as QPVLI

($3,500 minus $1,575). The 50 percent

personal use standard benefits taxpayers

with mixed-use vehicles who, under a

strict personal use standard, would be able

to deduct only interest properly allocable

to a trade or business.

The Treasury Department and the IRS

examined public survey data and confidential tax records to assess the prevalence

of mixed-use vehicles that may be affected

by the personal use standard. Analysis of

Panel Study of Income Dynamics (PSID)

data suggests that, in 2023, 11 percent of

personally owned vehicles were used for

mixed personal and business purposes.5

An alternative and narrower standard of

personal use, such as exclusive personal

use, would exclude roughly 700,000 loans

(11 percent of the estimated 6 million total

shown in Table A) from potential eligibility for the QPVLI deduction. See Table C.

Table C: Estimated Annual Loans on New U.S.-assembled Vehicles for Mixed Personal and Business Use

1. Estimated annual loans on new U.S.-assembled vehicles

6 million

2. Share of personally owned vehicles used for mixed personal and business purposes

11 percent

3. Estimated annual loans on new U.S.-assembled vehicles for mixed personal and business use

Approximately 700,000

Notes: Row 3 is the rounded product of rows 1 and 2.

Sources: Row 2 is derived from the 2023 Panel Study of Income Dynamics, variable ER82936. Row 1 is derived in Table A, with

data sourced from: “Light vehicle retail sales in the United States from 1976 to 2024,” Statista, last accessed October 27, 2025,

https://www.statista.com/statistics/199983/us-vehicle-sales-since-1951/; https://www.bts.gov/content/new-and-used-passengercar-sales-and-leases-thousands-vehicles; “New and used passenger car and light truck sales and leases,” Bureau of Transportation

Statistics, last accessed October 27, 2025, https://www.bts.gov/content/new-and-used-passenger-car-sales-and-leases-thousandsvehicles; “State of the Automotive Finance Market Report: Q2 2025,” Experian, last accessed October 27, 2025, https://www.

experian.com/automotive/auto-credit-webinar-form; manufacturer vehicle model sales data.

Tax records also contain information on

mixed personal and business use vehicles.

Sole proprietors file Schedule C to record

business income and expenses, including car or truck expenses. On part IV of

Schedule C, certain taxpayers are required

to enter information on their vehicle,

including the date a vehicle was placed in

service for business purposes; the number

of miles driven for business, commuting,

and other purposes; and whether the vehicle was available for personal use during

off-duty hours.6

Schedule C data has several limitations

for analysis of the personal use standard.

First, Schedule C does not distinguish

between new versus used cars, U.S.versus foreign-assembled cars, or cars

financed with loans versus cars that are

leased or purchased with cash. Because

sole proprietors will not have an SPVL

as a result of the purchase of used cars

or foreign-assembled cars, nor as a result

of the cash purchase or lease of any cars,

See variable ER82936 in the 2023 PSID. The survey language is: “Not counting routine use to get to and from work, is this vehicle also used for business purposes?”

Taxpayers are required to fill out part IV of Schedule C only if they claim car or truck expenses on Schedule C and are not required to file Form 4562, Depreciation and Amortization, for the

business in question. Taxpayers who have “listed property,” including automobiles, are required to enter information on such automobiles in Section B of Part V of Form 4562.

5

6

Bulletin No. 2026–39

391

September 21, 2026

totals of mixed-use vehicles from part IV

of Schedule C overstate the number of

sole proprietors’ vehicles that the personal

use standard will affect. Second, the data

available for analysis cover predominantly

electronically filed returns of Schedule C

rather than paper filed returns. Third, the

Schedule C data do not include vehicle

expenses that taxpayers may deduct on

Schedules E and F. Fourth, the Schedule

C data indicate when the car was placed

into service for business use rather than

when the individual first acquired the car.

The available Schedule C data nonetheless provide insight on the prevalence of

personal use of sole proprietors’ business

vehicles.

The Treasury Department and the IRS

estimate that in tax year 2023, sole proprietors who filed electronically placed 5

million vehicles in service for business

purposes.7 See Table D. About 80 percent

of these taxpayers indicated that the vehicle was also available for personal use

during off-duty hours. Among filers for

whom the vehicle was available for per-

sonal use, roughly 40 percent drove the

vehicle more than 50 percent of its total

mileage for personal use. The typical filer

drove the vehicle for majority business

use; the median share of total miles driven

for business purposes was about 80 percent. These estimates suggest that a substantial share of taxpayers with vehicles

for business use would benefit from the 50

percent personal use standard, relative to a

strict alternative standard, such as exclusive personal use.

Table D: Statistics on Tax Year 2023 Sole Proprietor Vehicle Use from Schedule C, Part IV

1. Sole proprietors’ vehicles placed in business service in tax year 2023*

5 million

2. Of vehicles placed in business service in tax year 2023 (row 1), the share reported to be available for

80 percent

personal use

3. Of vehicles placed in business service in 2023 and available for personal use, the share reported with

40 percent

more than 50 percent of mileage for personal use.

4. Of vehicles placed in business service in 2023 and available for personal use, the median share of miles

80 percent

driven for business use.

* This total does not correspond to vehicles that are APVs; it includes used, leased, and foreign-assembled vehicles, which are

not APVs. See the text for further detail on the Schedule C data and its limitations.

Source: Treasury Department analysis of confidential tax return data, October 24, 2025.

The personal use rules also benefit taxpayers by providing clarity. In the absence

of a personal use standard, two taxpayers with otherwise similar tax situations

would face uncertainty as to whether this

deduction applies to their situation. Without guidance, these taxpayers might make

different choices as to whether their vehicle loan interest qualifies for the deduction,

and, therefore, face different tax liabilities. Consider, for example, two taxpayers

who each buy an APV expecting for 75

percent of its use to be for personal use

and 25 percent for business use (assume

they meet all other requirements to claim

the deduction). Taxpayer A interprets the

section 163(h)(4) personal use requirement to mean that interest on the loan is

not QPVLI, because the vehicle is partly

for business use. In contrast, Taxpayer B

interprets the personal use requirement to

mean that interest on the loan is QPVLI

because a majority of the use of the vehicle is for personal use. The final regulations ensure that these two taxpayers use

the same standard of personal use and are

subject to the same tax treatment.

The personal use standard, relative to

a stricter alternative standard, may change

vehicle purchase patterns among taxpayers who use their vehicles for mixed

personal and business purposes (vehicles

on which loan interest would not be considered QPVLI under a strict personal use

standard). For this population, the 50 percent personal use standard would increase

the economic appeal of financing relative

to cash purchases and would increase the

economic appeal of new U.S.-assembled

vehicles relative to used or foreign-assem-

bled vehicles. The extent of consumption

changes along these margins depends on

several interacting factors, including: the

extent to which increased demand for

new U.S.-assembled vehicles driven by

the deduction affects the prices of these

vehicles; substitution elasticities between

new and used vehicles and between vehicles assembled in the U.S. and assembled

abroad8; the salience of the tax deduction

at the time of purchase9; and the extent to

which taxpayers perceive the deduction

as temporary, as prescribed in statute, or

likely to be extended by future policymakers. The Treasury Department and the IRS

do not have readily available parameters

and models to precisely assess the impact.

House Budget Committee Report 119-106

expects the deduction to promote domestic manufacturing.

The 5 million total reflects sole proprietorship-vehicle pairs. A sole proprietor who placed the same vehicle in service for multiple businesses in 2023 would appear more than once in this

total. Because Schedule C does not include a VIN or other unique vehicle identifier, Treasury and the IRS cannot distinguish these cases—the same vehicle placed in service for multiple

businesses—from cases in which a sole proprietor placed multiple vehicles in service for multiple businesses.

8

There is limited evidence on elasticities relating directly to the country of vehicle assembly. See Grieco et al. (2024) for estimates on consumer responsiveness to price changes across vehicle

manufacturers. Grieco, Paul L.E., Charles Murry, and Ali Yurukoglu. 2024. “The Evolution of Market Power in the U.S. Automobile Industry.” The Quarterly Journal of Economics 139 (2):

1201-1253, https://academic.oup.com/qje/article-abstract/139/2/1201/7276495?redirectedFrom=fulltext.

9

Chetty, Raj, Adam Looney, and Kory Kroft. 2009. “Salience and Taxation: Theory and Evidence.” American Economic Review 99 (4): 1145-77, https://www.aeaweb.org/articles?id=10.1257/

aer.99.4.1145.

7

September 21, 2026

392

Bulletin No. 2026–39

b. Personal Use Determined Soley by

Taxpayer Expectation at Time Debt is

Incurred

The final regulations provide that personal use is determined only once, based

on taxpayers’ expectation at the time

indebtedness is incurred. An alternative

standard could have required taxpayers

to evaluate their expected use each year

or document personal use each year to

continue to qualify for the deduction. A

repeated certification requirement would

result in considerable compliance burden

to taxpayers, particularly among taxpayers whose vehicles will be exclusively for

personal use. The final regulations would

benefit taxpayers by simplifying the process of claiming the QPVLI deduction,

relative to a requirement for annual certification of sufficient personal use.

c. Personal and Business Use Allocation

Under the final regulations, if a taxpayer

meets the personal use standard (more than

50 percent of expected use of an APV for

personal use), the vehicle loan may be

considered an SPVL. Alternative guidance

could have required taxpayers to allocate amounts of loan interest attributable

to personal and business uses of the APV

and allowed only interest directly linked

to personal use to be deducted. The final

rules streamline the process and reduce the

compliance burden of deducting QPVLI for

taxpayers and administering the deduction

for the IRS. Many taxpayers with mixed

personal and business use vehicles already

track and allocate personal and business

mileage for Federal income tax purposes.

For these taxpayers, the final regulations

promote flexibility by allowing taxpayers

who meet the personal use standard and all

other requirements to deduct vehicle loan

interest solely as QPVLI or, to the extent the

taxpayers have interest properly allocable to

a trade or business, as a business expense.

d. Specified Passenger Vehicle Loan

(SPVL) and Further Definitions

The final regulations clarify what constitutes an SPVL. Specifically, the final

rules provide that indebtedness qualifies as an SPVL only if the indebtedness

is incurred for the purchase of an APV

and for items and amounts customarily

financed in an APV purchase transaction

that are directly related to the purchased

APV. These items include vehicle service plans, extended warranties, and sales

taxes and vehicle-related fees. Indebtedness incurred for collision and liability

insurance or to purchase any property or

services unrelated to the APV (for example, a trailer or a boat) is not considered an

SPVL. The final regulations strengthen the

incentive for debt financing of the items

and amounts included in the SPVL definition (such as warranties and sales taxes),

relative to a rule that excluded those items

and amounts from the SPVL definition.

Alternative guidance could have prescribed that only debt directly attributable

to the price of the vehicle is an SPVL and

therefore that only interest on that portion of the loan is deductible. Such an

alternative standard could result in substantial compliance costs to taxpayers

and to lenders and interest recipients in

requiring allocations of indebtedness and

associated interest. For amounts customarily financed together, such as the price

of the vehicle itself and sales taxes and

warranties on the vehicle, identifying and

allocating which interest is attributable to

which portion of total indebtedness would

be difficult and costly to administer. The

guidance benefits taxpayers by removing

uncertainty and reduces burden relating

to what taxpayers may consider an SPVL.

According to Autotrader, for financed

vehicle purchases, “taxes and dealer fees

are almost always included in the payment.”10 A substantial share of taxpayers

with QPVLI would therefore benefit from

the SPVL definition, relative to an alternative definition that would require taxpayers to identify separately interest attributable to the price of the vehicle and items

and amounts customarily financed with

the vehicle. Relatedly, an SPVL definition

limited strictly to the price of the vehicle

may also require additional information

reporting that burdens interest recipients

and lenders. The SPVL definition benefits

entities subject to information reporting

requirements because taxpayers can determine their QPVLI without needing information on interest amounts related to the

price of the vehicle separate from interest

amounts related to items and amounts customarily financed with the vehicle.

II. Paperwork Reduction Act

The Paperwork Reduction Act of 1995

(44 U.S.C. 3501-3520) (PRA) generally

requires that a Federal agency obtain the

approval of the Office of Management

and Budget (OMB) before collecting

information from the public, whether that

collection of information is mandatory,

voluntary, or required to obtain or retain

a benefit. An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless it displays a valid control number

assigned by the OMB.

The collection of information in these

regulations contains reporting and recordkeeping requirements. The recordkeeping

requirements mentioned in the final regulations are considered general tax records

under § 1.6001-1(e). These records are

required for the IRS to validate that taxpayers have met the regulatory requirements and are entitled to the deduction

for QPVLI under section 163(a) and (h)

(4) and to verify the amount of the deduction claimed. For PRA purposes, general

tax records are already approved by the

OMB under 1545-0074 for individuals

and 1545-0092 for trust and estate filers.

The final regulations also mention

reporting requirements related to claiming the deduction for QPVLI under section 163(a) and (h)(4). These collections

will be made by eligible taxpayers as part

of filing a return (such as the appropriate

Form 1040 or 1041), including filling out

the relevant schedules. These forms are

approved by the OMB under 1545-0074

for individuals and 1545-0092 for trust

and estate filers.

The final regulations also include

reporting, third-party disclosure, and

recordkeeping requirements required

under section 6050AA as set forth in

§ 1.6050AA-1. These collections of

information will be used by the IRS for

“Are taxes and fees included in car financing?”, Autotrader, last accessed October 28, 2025, https://www.autotrader.com/car-shopping/financing-a-car-are-taxes-and-fees-included-in-financing-222154.

10

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393

September 21, 2026

tax compliance purposes and by taxpayers to help calculate their deduction. The

burden associated with these information

collections is included within the Form

and Instructions for Form 1098-VLI.

The Form 1098-VLI has been approved

by the OMB, in accordance with 5 CFR

1320.10, under OMB control number

1545-2334.

No public comments were received by

the IRS directed specifically at the PRA,

but comments were received by the IRS

on the proposed information collection

and proposed reporting requirements

and the burdens associated with the documentation requirements contained in

the proposed regulations. As described

in the relevant portions of this preamble,

the Treasury Department and the IRS

have determined that the documentation

requirements are necessary to administer

section 163(h)(4) and related information

reporting and penalty provisions.

Many commenters requested that

the Treasury Department and the IRS

consider the time and cost for interest recipients to make adjustments to

their systems to capture required data.

The Treasury Department and the IRS

acknowledge and appreciate that interest

recipients may need to make adjustments

to their systems and current processes to

capture the required data. However, as a

result of the interaction between sections

6050AA and 163(h)(4), certain information such as determining whether a vehicle is an APV and whether the interest

is received on an SPVL, is required by

statute. See parts III.B.1 and III.B.5 of

the Summary of Comments and Explanation of Revisions (Applicable Passenger Vehicle (APV) and Specified Passenger Vehicle Loan (SPVL), respectively)

for a discussion of these requirements.

The Treasury Department and the IRS

have not changed the estimated burden

of this reporting because commenters

did not provide information relating to

the additional costs associated with this

reporting.

Books or records relating to a collection of information must be retained as

long as their contents may become material in the administration of any internal

revenue law. Generally, tax returns and

tax return information are confidential, as

required by section 6103 of the Code.

September 21, 2026

III. Regulatory Flexibility Act

The Regulatory Flexibility Act (5

U.S.C. 601 et seq.) (RFA) imposes certain

requirements with respect to Federal rules

that are subject to the notice and comment

requirements of section 553(b) of the

Administrative Procedure Act (5 U.S.C.

551 et seq.) and that are likely to have a

significant economic impact on a substantial number of small entities. Unless an

agency determines that a proposal will not

have a significant economic impact on a

substantial number of small entities, section 604 of the RFA requires the agency to

present a final regulatory flexibility analysis (FRFA) of the final regulations.

The Treasury Department and the IRS

have determined the final regulations will

likely have a significant impact on a substantial number of small entities. Accordingly, an FRFA is provided in the final

regulations.

A. Need for and Objectives of the Rule

The final regulations provide the eligibility rules and key definitions regarding the QPVLI deduction, the deduction

allowed by section 163(h)(4), to allow

taxpayers to determine whether their

interest is QPVLI. In addition, the final

regulations provide the operational,

administrative, and definitional rules for

persons in a trade or business to comply

with the statutory information reporting

requirements under section 6050AA with

interest received on an SPVL.

Congress intended the OBBBA provision regarding the QPVLI deduction to

ease the financial burden of car ownership for individuals and promote domestic manufacturing. See House Budget

Committee report on the OBBBA, H.

Rept. 119-106, at 1510 (2025). The final

regulations are intended to facilitate

the easing of the financial burden of car

ownership by providing the information necessary for taxpayers to claim the

deduction. Additionally, the final regulations are consistent with the promotion of

domestic manufacturing. The rules direct

taxpayers to the NHTSA VIN lookup tool

to help taxpayers and interest recipients

determine whether a vehicle had undergone final assembly in the United States,

a necessary condition for the vehicle to

394

be an APV. Because the final regulations

assist taxpayers claiming the deduction,

the rules may also increase consumer

demand for vehicles with final assembly

in the United States. Over time, this may

lead manufacturers to increase production

and assembly of vehicles in the United

States in order to meet demand for vehicles that are eligible to be APVs. Thus, the

Treasury Department and the IRS intend

and expect that the final regulations will

deliver benefits across the economy that

will favorably impact individuals, vehicle

dealers, and the domestic manufacturing

industry, including vehicle manufacturers.

Section 6050AA establishes information reporting requirements with respect

to interest received on an SPVL. Information reporting under section 6050AA

will provide taxpayers with information

needed to claim the QPVLI deduction.

The final regulations are expected to facilitate the preparation of tax returns and

reduce the number of inadvertent errors

by taxpayers who claim the deduction.

The Treasury Department and the IRS

also intend and expect that the final regulations will provide certainty to interest

recipients required to comply with the

statutory reporting requirements under

section 6050AA.

B. Significant Issues Raised by Public

Comments in Response to the Initial

Regulatory Flexibility Analysis

No public comments were received

by Treasury and the IRS that directly

addressed the initial regulatory flexibility analysis of the proposed regulations,

but comments were received by the IRS

on the general burdens associated with

the proposed information collection, proposed reporting requirements, and documentation requirements contained in the

proposed regulations. Some commenters

referenced the entity size of specific interest recipients, including credit unions, and

stated that these interest recipients do not

currently track all the information necessary to comply with the proposed regulations. As described in the relevant portions

of this preamble, the Treasury Department

and the IRS have determined that the

requirements included in the final regulations are necessary to administer section

163(h)(4) and related information report-

Bulletin No. 2026–39

ing and penalty provisions. The Treasury

Department and the IRS also have determined that the statutory language does not

authorize or support separate information

reporting requirements for small entities.

C. Affected Small Entities

The RFA directs agencies to provide a

description of, and if feasible, an estimate

of, the number of small entities that may

be affected by the final regulation. The

Small Business Administration estimates

in its 2023 Small Business Profile that

99.9 percent of United States businesses

meet its definition of a small business.

The applicability of the final regulations

does not depend on the size of the business, as defined by the Small Business

Administration. Small Business Administration regulations provide small business

size standards by NAICS Industry. See 13

CFR 121.201.

As described more fully in this preamble to the final regulations and in this

FRFA, these rules may affect a variety

of different businesses across several

different industries but will primarily

affect dealers of new vehicles and financial entities that would be required to file

and furnish information returns under

section 6050AA. The NAICS includes

dealers of new vehicles and financial entities in NAICS codes for new car dealers

(code 441110), motorcycle dealers (code

441227), car loan lenders (code 522220),

and consumer lending (code 522291).

Based on confidential tax return data,

the Treasury Department and the IRS

expect approximately 36,000 businesses

to issue information returns under section 6050AA. See part I.III of this Special Analysis (Affected Entities and Taxpayers). This total does not include used

car dealers because the statute and final

regulations only apply to loans for new

vehicles. Of the estimated 36,000 car

and motorcycle loan lenders, the Treasury Department and the IRS expect

24,600 would likely be considered a

small entity.

D. Impact of the Rules

The final regulations will increase the

recordkeeping and reporting requirements

for businesses that provide loans for new

Bulletin No. 2026–39

cars and motorcycles. Although the Treasury Department and the IRS do not have

sufficient data to precisely determine the

likely extent of the increased costs of

compliance, the estimated burden of complying with the recordkeeping and reporting requirements are described in part II of

this Special Analyses (Paperwork Reduction Act). Based on the estimated number

of responses (8,000,000) and the estimated time to respond of 0.25 hours, the

estimated burden is 2,000,000 total annual

burden hours.

E. Alternatives Considered for Small

Businesses

The Treasury Department and the IRS

considered several alternatives to the final

regulations that would have reduced the

burden on small businesses. For example,

the Treasury Department and the IRS considered a delay for reporting by small businesses. Although this would ease the burden on small businesses, it would increase

the burden on individuals who need

the information reported under section

6050AA to accurately claim the deduction for QPVLI on their Federal income

tax returns. Accordingly, as discussed in

part III.H of the Summary of Comments

and Explanation of Revisions (Transition

Relief), the Treasury Department and the

IRS decided not to delay reporting under

section 6050AA.

Another alternative considered was

whether interest recipients should not be

required to furnish a written statement

to the payor of record and be permitted

instead to provide this information to the

payor of record either on a monthly statement or via an online portal. However, as

discussed in part III.G of the Summary of

Comments and Explanation of Revisions

(Requirement to Furnish a Written Statement), the requirement to furnish a statement to the payor of record is expressly

required by sections 6050AA(c) and

6724(d)(2)(MM).

IV. Section 7805(f)

Pursuant to section 7805(f), the proposed regulations (REG-113515-25) preceding this final regulation were submitted to the Chief Counsel for the Office of

Advocacy of the Small Business Adminis-

395

tration for comment on its impact on small

business, and no comments were received.

V. Unfunded Mandates Reform Act

Section 202 of the Unfunded Mandates

Reform Act of 1995 (UMRA) requires

that agencies assess anticipated costs and

benefits and take certain other actions

before issuing a final rule that includes

any Federal mandate that may result in

expenditures in any one year by a State,

local, or Tribal government, in the aggregate, or by the private sector, of $100

million (updated annually for inflation).

The final regulations do not include any

Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of

that threshold.

VI. Executive Order 13132: Federalism

Executive Order 13132 (Federalism)

prohibits an agency from publishing any

rule that has federalism implications if

the rule either imposes substantial direct

compliance costs on State and local governments, and is not required by statute,

or preempts State law, unless the agency

meets the consultation and funding

requirements of section 6 of the Executive

order. The final regulations do not have

federalism implications and do not impose

substantial direct compliance costs on

State and local governments or preempt

State law within the meaning of the Executive order.

VII. Congressional Review Act

Pursuant to the Congressional Review

Act (5 U.S.C. 801 et seq.), the Office of

Information and Regulatory Affairs designated this rule as a major rule, as defined

by 5 U.S.C. 804(2).

Statement of Availability of IRS

Documents

Guidance cited in this preamble is published in the Internal Revenue Bulletin

and is available from the Superintendent

of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by

visiting the IRS website at https://www.

irs.gov.

September 21, 2026

Drafting Information

The principal author of these regulations is Riston Escher, Office of the

Associate Chief Counsel (Income Tax &

Accounting), IRS. However, other personnel from the Treasury Department and the

IRS participated in their development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

Employment taxes, Excise taxes,

Income taxes, Penalties, Reporting and

recordkeeping requirements.

Amendments to the Regulations

Accordingly, the Treasury Department

and IRS amend 26 CFR parts 1 and 301

as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 is amended by adding an entry in

numerical order for § 1.6050AA-1 to read

in part as follows:

Authority: 26 U.S.C. 7805 * * *

*****

Section 1.6050AA-1 is also issued

under 26 U.S.C. 6050AA(e).

*****

Par. 2. Section 1.163-16 is added to

read as follows:

§ 1.163-16 Qualified passenger vehicle

loan interest.

(a) Overview—(1) In general. In computing the taxable income for a taxable

year beginning after December 31, 2024,

and before January 1, 2029, of a taxpayer

described in paragrap

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