On September 8 the IRS’ long-awaited regulations on the car loan interest deduction were published in the Federal Register.
Since the enactment of legislation establishing this new tax deduction, AFSA has been front and center. In consultation with our vehicle finance company members, we collected questions and suggestions to share with the Treasury Department and the IRS as they drafted regulations to implement the new tax deduction. We are grateful for Treasury and IRS’ engagement and collaboration as we worked to make a smooth launch for this new policy.
During our interactions with Treasury and the IRS, we stressed that a vehicle finance contract is a unified whole, and that it is infeasible for consumers and vehicle finance companies to report on components of the interest paid on vehicle finance contracts. For example, if a consumer pays interest on a vehicle finance contract in a given year, existing systems do not split that amount into the amount of interest on the vehicle purchase price, taxes and fees, voluntary protection products, or financed negative equity. When Congress wrote the law, it created a deduction from income tax for “any interest which 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 for personal use.” “Any interest” should mean any interest.
The regulations proposed by the IRS and finalized this week limit the interest deduction, reducing the value of the deduction for taxpayers. The regulations say that no deduction is available for interest attributable to financed negative equity. The ability to finance negative equity makes new car purchases possible for many consumers, and denying the deduction for this interest frustrates the Congressional intent behind its legislation. Singling out negative equity is also inconsistent with the statutory text.
AFSA is currently consulting with other trade associations and counsel regarding potential responses to the regulation. More to come.
On September 8 the IRS’ long-awaited regulations on the car loan interest deduction were published in the Federal Register.
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