This post is general information and is not legal or tax advice. For how these rules apply to your credit union’s specific systems and loans, consult your own counsel and tax advisors.

On September 8, 2026, the IRS and Treasury published the final regulations implementing the One Big Beautiful Bill car loan interest deduction. The good news for your members is real. The news for the credit unions doing the reporting is that nearly every relief request the industry requested got waved back into traffic.

Here’s what actually changed between the proposal and final regulations and, more to the point, what didn’t.

The member facing wins

Eligible taxpayers can deduct up to $10,000 of qualified passenger vehicle loan interest per return, per year, for tax years 2025 through 2028. It’s available whether or not they itemize, and multiple qualifying loans get combined before the cap applies. The deduction phases out once modified Adjusted Gross Income (AGI) tops $100,000 ($200,000 for joint filers), shrinking by $200 for every $1,000 over the line.

The vehicle still has to be new, undergo final assembly in the U.S., be a qualifying type under 14,000 pounds, and be bought mainly for personal use. That last test is measured once, at origination, so a member who later starts moonlighting as a rideshare driver doesn’t retroactively blow up the deduction.

The clarifications that went the industry’s way

Treasury did hand out some useful fixes:

• More of the deal counts. Except for refinances, points and capitalized interest are confirmed as deductible interest, and the list of “customarily financed” add ons that can ride along in the qualifying loan expanded to include GAP, warranties, service contracts, protection products, certain credit insurance, and even key fob replacement and title and registration fees.
• “First lien” got more forgiving. Involuntary liens, short title processing delays, and lien release on repossession or a total loss payout won’t, by themselves, disqualify the interest.
• Demo vehicles and co-purchaser fixes. A dealer’s demo use generally won’t consume “original use,” and original use can begin with each co-purchaser.
• The weight limits stopped tripping over themselves. Confusing sub limits that could have accidentally disqualified heavier SUVs and pickups are gone.

The asks the IRS declined and the impact on credit unions

The through line is that the statute makes lenders determine eligibility, so the IRS declined to let you off the hook.

• No “report all vehicle loans” option. The single biggest industry ask—let lenders report every vehicle loan and leave eligibility to the borrower—was rejected. You must determine, loan by loan, whether the vehicle is an “applicable passenger vehicle” and whether the debt is a “specified passenger vehicle loan.”
• No safe harbors. Not for VIN or final assembly reliance, not for borrower certification on refinances, not for minor VIN errors. You must obtain and report VINs and perform “adequate diligence”.
• No extended transition. The 2025 tax year relief under Notice 2025-57 was not extended. Plan for full Form 1098-VLI reporting on calendar year 2026 interest with no phase in and the standard §§ 6721/6722 penalty framework in play.
• A new legend to add. Borrower statements must now warn the member that they may not be able to deduct the full amount reported.

A Federal Tax Benefit Only

(But get confirmation from your tax advisor!)

This deduction is valuable, federally. For most New York members, it will do precisely nothing for their New York State income tax.  The deduction is subtracted in computing federal taxable income, which means it sits below federal AGI. New York’s personal income tax starts from federal AGI and then applies its own deduction regime, so a below AGI federal deduction like this one generally doesn’t carry through.

Your To-Do List

Three things worth putting on the list before year end:

• Check your data feeds. Confirm your LOS, servicing platform, and indirect lending feeds can capture and store new vehicle status, VIN, final assembly indicator, and the amounts needed for pro rata interest allocation; and that they can generate and e-file (for more than 10 returns) Form 1098-VLI.
• Update your statement templates. Add the new “may not be deductible in full” legend for year-end statements.
• Update your refinance procedures. Document an “adequate diligence” procedure that includes payoff documentation and original borrower confirmation since there’s no certification safe harbor to hide behind.

The Punchline

Your members get a tax break. You get a new information return, a VIN-collection project, and required language to disclose. For a bill with “beautiful” in the name, that feels about right.

Until Next Time

From the big picture to the fine print, we’ve got you covered. Thanks for reading, and CU in the next post.