# Bulletin No. 2026–39

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URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3A0931d1208ed538e9

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

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
for the matters published during the preceding months. These
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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A0931d1208ed538e9. Public record. Not legal advice.