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This provision allows a deduction up to $10,000 for interest paid or accrued on a qualified passenger vehicle loan for taxable years beginning after December 31, 2024, and before January 1, 2029. The deduction is reduced by $200 for every $1,000 (or portion of) by which the modified adjusted gross income (MAGI) exceeds $100,000 ($200,000 for married filing joint). This provision also allows this deduction in addition to the standard deduction for taxpayers who do not itemize.
This provision defines “qualified passenger vehicle loan interest” as interest paid or accrued during the taxable year on indebtedness incurred by the taxpayer after December 31, 2024, which is secured as a first lien or on a refinanced loan on an applicable passenger vehicle used for personal use. The deduction cannot be used for interest paid or incurred on a loan to finance fleet sales, commercial vehicles not used for personal use, lease financing, a vehicle with a salvage title, or a vehicle intended to be used for scrap or parts.
The deduction would also be allowed for a refinanced loan if the indebtedness is secured by a first lien on the applicable vehicle but only to the extent the indebtedness does not exceed the amount of the refinanced indebtedness. In addition, the deduction is not allowed for indebtedness owed to a related party.
The provision defines “applicable passenger vehicle” as a car, minivan, van, sports utility vehicle, pickup truck, or motorcycle used on public streets, roads, and highways. The vehicle’s original use must begin with the taxpayer. The vehicle must have at least two wheels, be treated as a motor vehicle under the Clean Air Act and has a gross vehicle weight rating of less than 14,000 pounds. The vehicle’s final assembly must take place in the U.S., where the vehicle is produced at or through the use of a plant, factory, or other place where it is delivered to a dealer with all components permanently installed or not necessary to operate the vehicle.
The deduction is not allowed unless the vehicle identification number (VIN) of the qualified passenger vehicle tis included on the individual’s tax return. This provision requires information reporting by any person who is engaged in a trade or business and through the business receives interest aggregating $600 or more for any calendar year on a passenger vehicle loan to report to the Secretary of the Treasury on the amount of interest received. Additionally, any person required to report to the Secretary of the Treasury must provide this information to taxpayers on an information return. A penalty would apply for failure to file a return reporting passenger vehicle loan interest and for failure to provide a payee statement to the taxpayer, unless the failure to file is due to reasonable cause and not willful neglect.
California generally conforms, under the personal income tax law (PITL), to additional itemized deductions, as of the specified date of January 1, 2025, with modifications. The changes made to federal law by this provision were added after January 1, 2025. As a result, California does not conform to the deduction for passenger vehicle loan interest.
Under the Administration of Franchise and Income Tax Law (AFITL), the FTB may require a copy of any information return required to be filed with the Secretary of the Treasury, that is added to the IRC by a public law enacted on or after January 1, 2009, at the time and in the form and manner as the FTB may, by forms and instructions, require. As a result, California would conform to the provision requiring the information return related to the passenger vehicle loan.
California generally conforms to IRC section 6724 for reasonable cause waiver, definition, and special rules, as of January 1, 2025, with modifications, but does not conform to the modifications made under this provision.
The estimated revenue impact to conform to the above federal provisions would result in the following loss:
26/27 27/28 28/29 29/30 ($490,000,000) ($460,000,000) ($220,000,000) $0