Financial institutions will soon face new information reporting requirements for certain vehicle loans. The Internal Revenue Service (IRS) recently released final Form 1098-VLI, Vehicle Loan Interest Statement, along with accompanying instructions and final regulations implementing IRC Section 6050AA.
Enacted as part of the “One Big Beautiful Bill Act” (OBBBA), the new reporting regime requires lenders to report interest received on qualifying vehicle loans and may necessitate additional processes to identify eligible loans, validate borrower and vehicle information, and maintain supporting documentation. Management teams will need to assess whether they currently collect and retain the information necessary to comply with these requirements.
Key Takeaways:
- The first required filings are not due until 2027 for calendar year 2026 interest, but financial institutions that begin assessing data availability and vendor readiness now may be better positioned to avoid operational challenges during the initial reporting cycle.
- Although banks, credit unions, and other vehicle lenders may already collect much of the required information, some financial institutions may need to modify existing origination, servicing, or information-reporting processes.
- The final guidance clarifies that lenders need to make affirmative determinations regarding whether a loan qualifies as a reportable specified passenger vehicle loan (SPVL) and whether reported interest relates to the qualifying portion of the financing arrangement.
Transition relief under Notice 2025-57 applied to interest received in calendar year 2025. The final regulations do not extend that relief, so the Form 1098-VLI reporting requirements apply beginning with interest received in calendar year 2026.
Vehicle Loans Subject to Reporting by Financial Institutions
Form 1098-VLI is used to report interest of $600 or more received on an SPVL during a calendar year. A separate Form 1098-VLI is issued for each SPVL. The final regulations and filing instructions indicate that qualifying loans generally must:
- Be incurred after December 31, 2024
- Be used to purchase a qualifying passenger vehicle
- Be for personal use
- Be secured by a first lien on the vehicle
- Meet various additional requirements related to the vehicle and borrower qualifications
The regulations also address refinanced loans, purchased loan portfolios, changes in obligors, substitute vehicles, and financing arrangements that contain both qualifying and nonqualifying components.
Financial institutions that purchase vehicle loan portfolios or acquire loans through mergers and acquisitions may need access to historical borrower, vehicle, and transaction-level information that was not originally collected within their own systems.
The Form 1098-VLI provided to the borrower must include legends stating that it is important tax information furnished to the IRS and that penalties may apply if the borrower overstates a deduction, as well as a legend noting that the borrower may be unable to deduct the full amount of interest reported.
What Financial Institutions Should Begin Evaluating Today
Many financial institutions already collect some of the required information through loan origination and servicing systems. The reporting requirements, however, extend beyond annual interest information and may require institutions to maintain data that historically was not necessary for information reporting purposes. Areas worth evaluating include:
1. Borrower Information
Financial institutions should evaluate whether they maintain sufficient borrower information to support Form 1098-VLI reporting and identify the appropriate payer of record. The standard information, such as name, taxpayer identification number, and customer address, is generally readily available for reporting purposes. Particular attention may be needed for loans involving multiple obligors, ownership changes, or other circumstances requiring a determination of which taxpayer is entitled to receive the information return. Even when there are co-borrowers, only one statement per SPVL is required, and it is furnished to the payer of record, which is the person carried on the institution’s books and records as the principal borrower.
Institutions will also need a way to establish that a loan was incurred for personal use, which is determined at the time the loan is incurred. If the loan contract contains sufficient information and nothing conflicts with it, the institution may rely on that information. Where the contract does not address personal use or is unavailable, as may be the case for acquired or refinanced loans, institutions may need to obtain the information from the borrower, the lender of record or another source.
2. Vehicle Information
The new form reporting will require vehicle year, make, model, as well as vehicle identification number (VIN). Because Form 1098-VLI reporting is limited to loans secured by qualifying vehicles that satisfy specific statutory requirements, lenders should verify that vehicle-related information necessary to establish eligibility is collected and retained throughout the life of the loan.
In addition to standard vehicle identification information noted, institutions may need documentation supporting requirements such as original use of the vehicle and final assembly in the United States. The finalized regulations state that a vehicle will not be considered original use unless the loan documentation treats the vehicle as a new vehicle and the Form 1098-VLI instructions indicate that final assembly information can generally be determined through the vehicle's VIN and using the National Highway Traffic Safety Administration VIN Decoder website.
Institutions may alternatively rely on the final assembly point reported on the window sticker affixed to the vehicle. The final Form 1098-VLI also includes check boxes indicating whether original use of the vehicle began with the payer of record and whether final assembly occurred in the United States, so institutions will be affirmatively reporting both determinations. Financial institutions acquiring loans through portfolio purchases or mergers may need to assess whether this information is available for acquired loans and whether sufficient documentation exists to support eligibility determinations.
3. Loan Information
Financial institutions should maintain sufficient loan-level information to determine whether a financing arrangement qualifies as a reportable SPVL and to accurately report both interest received and outstanding principal for the calendar year. Box 4 of Form 1098-VLI requires the outstanding principal on the SPVL as of January 1 of the reporting year. If the institution originated the SPVL during the year, the amount reported is the principal as of the date of origination. If the institution acquired the SPVL during the year, the amount reported is the outstanding principal as of the date of acquisition. As a result, institutions will need the ability to retrieve point-in-time principal balances, not just current or year-end balances, along with the origination and acquisition dates that determine which measurement date applies.
In addition to current servicing information, institutions may need procedures for tracking events that can affect reporting obligations, such as loan acquisitions, refinancings, ownership transfers, modifications and substitute vehicle transactions. For acquired loans in particular, the seller’s records may be the only source of the principal balance at acquisition, so institutions should confirm that this data transfers with the portfolio. Consistent retention of loan history and supporting documentation will be important to support reporting positions and regulatory compliance.
4. Transaction-level Information
Because financing arrangements may include both qualifying and nonqualifying amounts, financial institutions should maintain transaction-level information that identifies the components of vehicle financing and supports any required allocation of indebtedness. While the vehicle purchase price and certain related products, services, taxes, and fees financed as part of the transaction may qualify as SPVL indebtedness, other amounts, such as trade-in negative equity, cash-out proceeds, collision or liability insurance, or unrelated products and services, generally do not. Appropriate tracking of these amounts will be important for determining the interest reportable on Form 1098-VLI.
Operational Considerations for Financial Institutions
For many banks and credit unions, implementation will extend beyond tax reporting functions and likely require coordination across consumer lending, loan operations, information reporting, compliance, information technology, core processors and servicing vendors, and internal audit and risk management functions for successful compliance.
Common Implementation Challenges
Financial institutions may also want to evaluate whether existing information reporting platforms can accommodate new data fields and validation requirements before the first reporting cycle begins, as some institutions may experience the following challenges during implementation:
- Determining whether qualifying vehicle criteria have been satisfied
- Identifying payer-of-record information in multi-borrower situations
- Tracking refinanced loans and substitute vehicles
- Obtaining required data for purchased loans
- Separating qualifying and nonqualifying financed amounts
- Coordinating system changes with core processors and outside vendors
Discussions with core service providers and reporting vendors can help identify whether all required data elements will be available, retained, and reportable through existing systems and interfaces.
Next Steps for Financial Institutions
Financial institutions that begin assessing data availability and vendor readiness now may be better positioned to avoid operational challenges during the initial reporting cycle. In particular, lenders should confirm that borrower, vehicle, and transaction-level information can be retained, validated, and reported consistently across loan origination, servicing, and information reporting platforms.
To prepare for Form 1098-VLI reporting, management should:
- Identify potentially reportable loan populations
- Evaluate whether required borrower, vehicle, and loan data are currently captured and retained
- Understand how qualifying and nonqualifying financed amounts will be identified, documented, and apply the pro rata allocation to interest received
- Review vendor implementation timelines and reporting capabilities
- Develop procedures and controls to support required eligibility determinations and information reporting
Your Guide Forward
Our financial institutions tax professionals are actively monitoring developments related to Form 1098-VLI and the associated regulations. If you have questions regarding the reporting requirements, data collection considerations, or implementation challenges, please contact your trusted Cherry Bekaert advisor.
