Your lender sent you a new tax form this year. Form 1098-VLI sits in your mailbox or inbox, and you have no idea what it means for your tax return.
I know this because the IRS just rolled out Form 1098-VLI in 2025 as part of the One Big Beautiful Bill Act. Most borrowers with auto loans have never heard of it. Yet this form directly affects how much you can deduct - and how much you'll owe.
Form 1098-VLI reports the interest you paid on your vehicle loan. If you paid $600 or more in qualifying interest during 2025, your lender must send you this form by January 31, 2026. That interest becomes a potential deduction worth up to $10,000 per year through 2028.
Here's what makes this form different from standard loan statements. The IRS wants specific details about your vehicle - the VIN, assembly location, loan origination date, and whether the loan secures a first lien. Without those details, you can't claim the deduction. With them, you might save thousands.
This guide walks through every line on Form 1098-VLI. You'll see exactly what each box means, which numbers matter for your tax return, and how to spot errors before they cost you money.
What Is Form 1098-VLI and Why Did Your Lender Send It
Form 1098-VLI is an IRS information return that shows how much interest you paid on a qualifying vehicle loan during the calendar year. The form exists because Congress created a new tax deduction for auto loan interest in 2025.
Think of it as the vehicle loan version of Form 1098 for mortgage interest. Your lender tracks the interest you pay each month, then reports the annual total to both you and the IRS. The form includes details about your vehicle that prove it qualifies for the tax deduction.
The reporting threshold sits at $600. If you paid less than $600 in vehicle loan interest during 2025, your lender doesn't have to send Form 1098-VLI. But you can still claim a deduction if you have documentation showing what you paid.
For 2025 only, the IRS gave lenders transitional relief. Instead of the official Form 1098-VLI, your lender might send a monthly statement or year-end summary showing your total interest paid. That alternative statement works for your 2025 tax return.
Starting in 2026, lenders must use the actual Form 1098-VLI. No more substitutes or alternate formats.
Who Gets Form 1098-VLI From Their Lender
You receive Form 1098-VLI if you meet all these conditions during 2025:
- You paid $600 or more in interest on a qualifying vehicle loan
- Your loan originated after December 31, 2024
- The vehicle is new and underwent final assembly in the United States
- Your loan is secured by a first lien on the vehicle
- The vehicle is for personal use - not business, fleet, or commercial purposes
Refinanced loans qualify under specific rules. If you refinanced a pre-2025 vehicle loan during 2025 through 2028, you can deduct interest - but only on the portion of the new loan that doesn't exceed your original loan balance. The excess doesn't qualify.
Used vehicles don't trigger Form 1098-VLI. Neither do leased vehicles. The IRS designed this deduction for new vehicle purchases only.
Your income affects whether the deduction helps. The benefit starts phasing out at $100,000 for single filers and $200,000 for married couples filing jointly. For every $1,000 above those thresholds, your deduction drops by $200.
Breaking Down Every Box on Form 1098-VLI
Form 1098-VLI contains several critical boxes that you need to understand before filing your return. Each box serves a specific purpose in proving your deduction eligibility.
Box 1 - Total Interest Received
This box shows the total dollar amount of interest your lender received from you during 2025. The number includes all qualifying interest payments you made from January 1 through December 31.
Check this amount against your loan statements. Add up every monthly payment's interest portion. If Box 1 doesn't match your records, contact your lender immediately.
This is the base number for your deduction - but not necessarily what you'll claim. Income phase-outs might reduce your deductible amount below what Box 1 shows.
Box 2 - Outstanding Principal Balance
Box 2 reports your remaining loan balance as of December 31, 2025. The IRS wants this number to verify the loan is still active and secured by the vehicle.
A zero balance means you paid off the loan during the year. You can still deduct the interest you paid before payoff - Box 1 captures that full amount.
Box 3 - Loan Origination Date
This date proves when your loan started. For the deduction to work, this date must be January 1, 2025, or later. Loans originated in 2024 or earlier don't qualify unless you refinanced after December 31, 2024.
A refinance creates a new origination date. The IRS treats refinancing as starting a new loan - which opens the door to deduction eligibility even for older vehicles.
Box 4 - Vehicle Identification Number
The VIN is mandatory. You must report this exact 17-character code on Schedule 1-A when claiming your deduction. The IRS uses the VIN to verify final assembly location and vehicle age.
Write down this VIN carefully. One wrong digit disqualifies your entire deduction.
Box 5 - Vehicle Year, Make, and Model
This box confirms what you bought. The year must be 2025 or later for loans originated in 2025. The make and model help the IRS verify weight ratings and assembly location.
Box 6 - Final Assembly Location
Box 6 states where the vehicle underwent final assembly. The location must be in the United States. Foreign assembly - even by American manufacturers - disqualifies the vehicle.
Check your window sticker or owner's manual if Box 6 looks wrong. The final assembly plant appears on every vehicle's certification label.
Common Errors on Form 1098-VLI That Cost You Money
Lenders make mistakes. I've seen incorrect interest totals, wrong VINs, and missing assembly information. Each error can delay your refund or trigger an audit.
Here's what to verify before you file:
- Interest total matches your payments. Add up the interest portion from every 2025 statement. The total should equal Box 1 within a few dollars.
- VIN has 17 characters. Check every digit against your title or registration. A typo here means automatic rejection.
- Assembly location shows US plant. If Box 6 says Mexico, Canada, or any foreign country, you can't claim the deduction - even if the manufacturer is American.
- Origination date is after December 31, 2024. Earlier dates mean the loan doesn't qualify unless you refinanced.
- Vehicle type qualifies. Cars, SUVs, pickup trucks, minivans, and motorcycles work. Anything over 14,000 pounds gross vehicle weight doesn't.
What if you spot an error? Call your lender's customer service immediately. Request a corrected Form 1098-VLI in writing. Most lenders will issue a revised form within two weeks.
Don't file with incorrect information. The IRS automatically receives a copy of your Form 1098-VLI. Any mismatch between what your lender reported and what you claim triggers a review.
How Form 1098-VLI Connects to Your Tax Return
Form 1098-VLI provides the numbers you need for Schedule 1-A, the new form for claiming vehicle loan interest deductions. Schedule 1-A then flows to your Form 1040.
The process works like this. You take the interest amount from Form 1098-VLI Box 1. You enter that amount on Schedule 1-A along with your VIN. Schedule 1-A calculates any income phase-out reductions. The final deduction amount transfers to Form 1040.
This deduction is "above-the-line" - meaning it reduces your adjusted gross income even if you don't itemize deductions. You get the benefit whether you take the standard deduction or itemize.
The $10,000 cap applies per year, not per vehicle. If you financed two qualifying vehicles in 2025, you can deduct interest from both loans - but only up to $10,000 total.
What to Do If You Never Received Form 1098-VLI
You paid qualifying interest but your lender didn't send the form. This happens more than it should - especially in 2025 when the requirement is brand new.
Contact your lender first. Request a year-end interest statement showing your total interest paid, loan origination date, and vehicle details. For 2025, the IRS accepts alternative statements in place of the official form.
Keep detailed records. Save every monthly payment confirmation. Print your loan agreement showing the origination date and VIN. Gather your vehicle's window sticker proving US assembly.
You can claim the deduction without Form 1098-VLI if you have supporting documentation. The burden falls on you to prove the loan qualifies and the interest amount is correct.
After 2025, missing Form 1098-VLI becomes more problematic. Starting with 2026 tax returns, lenders must use the official form. If your lender fails to provide it, the IRS might question your deduction more aggressively.
Income Phase-Outs and How They Reduce Your Deduction
The vehicle loan interest deduction starts disappearing at certain income levels. Single filers begin losing the benefit at $100,000 modified adjusted gross income. Married couples filing jointly start phasing out at $200,000.
The phase-out works in $1,000 increments. For every $1,000 your income exceeds the threshold, your deduction drops by $200.
Here's the math. Say you're single with $110,000 income and $10,000 in qualifying interest. You're $10,000 over the threshold. That means 10 increments of $200 reduction - or $2,000 total. Your deduction falls to $8,000.
The deduction disappears completely at $150,000 for single filers and $250,000 for joint filers. Above those incomes, you get zero benefit regardless of interest paid.
Form 1098-VLI doesn't account for phase-outs. Box 1 shows your full interest amount. Schedule 1-A is where the phase-out calculation happens.
Special Situations That Affect Form 1098-VLI Reporting
Refinancing, co-borrowers, and mid-year purchases create unique reporting scenarios. Here's how each situation plays out on Form 1098-VLI.
Refinanced Loans
You refinanced an older vehicle loan in 2025. Your Form 1098-VLI shows interest from the new loan only - starting from the refinance date.
The deductible amount gets limited. You can only deduct interest on the portion of the new loan that doesn't exceed your original loan balance at refinancing. If you took cash out or rolled in fees that increased the loan amount, that excess interest doesn't qualify.
Your lender's Form 1098-VLI won't make this distinction. Box 1 shows all interest you paid. You're responsible for calculating the non-deductible portion based on your loan documents.
Co-Borrowers
Two people on the loan means careful coordination at tax time. The lender typically sends Form 1098-VLI to the primary borrower only.
If you're co-borrowers, decide who claims the deduction. Only one person can take it - you can't split the deduction between two tax returns. Whoever claims it must report the full interest amount and meet all eligibility requirements.
Vehicle Purchased Mid-Year
You bought your vehicle in August 2025. Form 1098-VLI shows only the interest paid from August through December. That's correct - you can only deduct what you actually paid during the calendar year.
Your first full year of deductions comes in 2026 when you'll pay interest for all 12 months.
Sold or Traded the Vehicle
You traded your 2025 vehicle in November. Form 1098-VLI shows interest through your payoff date. You can deduct that amount even though you no longer own the vehicle.
The new vehicle you bought with the trade might generate a second Form 1098-VLI if you financed it. Both deductions combine toward your $10,000 annual limit.
How Long This Deduction Lasts and What Happens After 2028
The vehicle loan interest deduction expires after tax year 2028. Congress set a four-year window - 2025 through 2028 - for this benefit.
After 2028, you can't claim new vehicle loan interest deductions. If you finance a vehicle in 2029 or later, the interest becomes non-deductible personal interest again.
Loans originated during 2025-2028 don't get grandfathered. Once the deduction expires, it's gone - even if you're still paying on a loan that qualified in earlier years.
This creates timing pressure. If you're considering a new vehicle purchase, buying during the 2025-2028 window maximizes your tax benefit. A 2029 purchase loses the deduction entirely.
State Tax Treatment of Vehicle Loan Interest
Form 1098-VLI is a federal form. Whether your state allows a similar deduction depends on state tax law.
Most states link their tax calculations to federal adjusted gross income. If your state uses federal AGI as a starting point, the vehicle loan interest deduction automatically flows through because it reduces your federal AGI.
Some states don't conform to federal tax changes immediately. They might require separate legislation to adopt the vehicle loan interest deduction. Check with your state tax agency or a local tax professional.
States that don't use federal AGI won't give you any benefit from this deduction. You'll save on federal taxes but see no state tax reduction.
Keeping Records Beyond Form 1098-VLI
Form 1098-VLI is essential but not sufficient. The IRS might ask for additional proof during an audit or review.
Keep these documents with your tax records:
- Your original loan agreement showing the origination date and first lien status
- Monthly payment statements breaking down principal and interest
- Vehicle window sticker or purchase documents proving US final assembly
- Title or registration confirming the VIN matches Form 1098-VLI
- Any correspondence with your lender about interest amounts or form corrections
Store these records for at least three years after filing. The IRS can audit returns within three years of filing in most cases.
If you claimed a large deduction relative to your income, consider keeping records longer. The IRS has six years to challenge returns in certain situations involving substantial understatement of income.
Next Steps - What to Do With Form 1098-VLI Now
You have Form 1098-VLI in hand. Here's your action plan.
First, verify every number. Check Box 1 against your loan statements. Confirm the VIN matches your vehicle documents. Make sure the assembly location shows a US plant.
Second, calculate your deduction eligibility. If your modified AGI exceeds $100,000 (single) or $200,000 (joint), work through the phase-out calculation to see how much you can actually deduct.
Third, gather supporting documents. Don't rely on Form 1098-VLI alone. Collect your loan agreement, payment records, and vehicle documentation.
Fourth, complete Schedule 1-A when you file your 2025 tax return. Enter the interest from Box 1, add your VIN, and let the form calculate any phase-out reduction.
Fifth, keep everything. File Form 1098-VLI with your tax records along with all supporting documents.
If you spot errors on Form 1098-VLI, don't wait. Contact your lender today and request corrections in writing. The sooner you fix errors, the smoother your filing process.
The vehicle loan interest deduction cuts your tax bill when you understand how Form 1098-VLI works. Check your form carefully, claim what you're entitled to, and keep solid records. That's how you turn this new tax break into actual savings.