For calendar year 2025 interest, the IRS gave lenders a temporary off-ramp from full Form 1098-VLI filing. For calendar year 2026 interest (and later), that off-ramp is gone: the official form, IRS filing, and normal penalty rules apply.
That is the whole shift. The deduction statute did not “turn on” in 2026 — reporting did.
What 2025 transition relief allowed
Notice 2025-57 covered returns and statements for interest received in calendar year 2025 on a specified passenger vehicle loan (SPVL). In short:
- Lenders did not have to file Form 1098-VLI with the IRS for 2025 interest
- They still had to make the total 2025 interest available to the borrower by January 31, 2026 — for example through an online portal, a monthly statement, an annual summary, or a similar method
- If they met that path, the IRS said it would not impose §§6721 / 6722 penalties for 2025 under the notice
So many borrowers saw a year-end interest figure without a formal 1098-VLI. That was expected for 2025, not a system failure by itself.
Background on the form: Form 1098-VLI explained.
What “full reporting” means for 2026 interest
For interest received in 2026 (statements and IRS filings due in early 2027):
| Duty | Rule of thumb |
|---|---|
| Form | Official Form 1098-VLI (not a substitute interest blurb) |
| Furnish to borrower | By January 31 |
| File with IRS | February 28 (paper) or March 31 (e-file) |
| Who | Business that receives $600+ of SPVL interest on one loan (often the first recipient / servicer) |
| Penalties | Normal §§6721 / 6722 tiers if you miss furnish or file |
Details: filing deadlines and penalties. Field meanings: line-by-line.
“Full enforcement” here means information-return enforcement — accurate, timely Form 1098-VLI — not a new set of deduction eligibility rules invented for 2026.
Side-by-side
| Topic | Tax year 2025 interest | Tax year 2026 interest |
|---|---|---|
| Borrower statement | Interest total by Jan 31, 2026 (flexible format OK under the notice) | Form 1098-VLI (or proper substitute meeting Pub. 1179 rules) by Jan 31, 2027 |
| IRS information return | Not required under Notice 2025-57 | Required when the $600 SPVL threshold is met |
| Penalty cushion in the notice | Yes, if the notice’s path was followed | No — standard penalty rules |
| Deduction (if you otherwise qualify) | Available for 2025–2028 under the statute | Same statutory window; better matching to IRS copies of 1098-VLI |
What this means for lenders
If you are building process in 2026, design for the 2026 / early-2027 cycle:
- Identify SPVLs and the $600-per-loan threshold
- Capture VIN, origination/acquisition dates, original use, and U.S. final assembly (Boxes 2–7 matter)
- Furnish and e-file on the normal January / March calendar
- Plan corrections through IRIS / corrected returns — not “we’ll fix it quietly because it’s year one”
Credit unions, BHPH dealers, and banks all sit under the same §6050AA idea; portfolio-specific write-ups live elsewhere (credit unions, BHPH, §6050AA).
What this means for borrowers
- 2025 return: A portal total or year-end interest statement could be all you got. You could still claim if you otherwise qualified and could document interest — see lender didn’t send 1098-VLI.
- 2026 return (filed 2027): Expect Form 1098-VLI if you hit the reporting threshold. Reconcile Box 1 to your records before you claim. The IRS will have a copy.
- Eligibility did not flip with the notice. Leases still don’t qualify; used vehicles generally don’t; U.S. final assembly and the other gates still apply. Overview: what the new deduction is.
If your 2025 interest figure and your 2026 Form 1098-VLI look like they came from different planets, that can be format change plus a full year of interest — not proof that one year “didn’t count.”
What did not change
- The deduction window remains tax years 2025–2028
- The reporting threshold idea remains $600 of interest per SPVL
- Borrowers still claim on their return using interest + VIN; they do not “file the 1098-VLI” with the 1040
- Transition relief did not authorize deducting lease payments or skipping assembly / new-vehicle rules
Bottom line
2025: borrower interest statement required; IRS Form 1098-VLI filing relieved under Notice 2025-57.
2026+: full Form 1098-VLI furnish + IRS file, with ordinary penalties.
If you are a lender, treat 2025 as closed history and operate on the 2026 calendar. If you are a borrower, keep whatever 2025 proof you have, and expect a real 1098-VLI for 2026 interest.
Educational information only, not tax advice. Confirm against Notice 2025-57 and the current Form 1098-VLI instructions.
