Form 1098-VLI: The Complete Guide for Lenders (2026)

Form 1098-VLI (Vehicle Loan Interest Statement) is the new IRS information return that auto lenders, credit unions, and captive finance arms must file beginning with calendar year 2026 interest, reporting up to $10,000 of qualifying vehicle loan interest paid by borrowers under the One Big Beautiful Bill Act's new IRC §163(h)(4) car loan interest deduction.

Key Takeaways

• Form 1098-VLI is brand new for tax year 2026. Section 70203 of the One Big Beautiful Bill Act (P.L. 119-21) created the form by adding new IRC §6050AA. You file it if, in the course of your trade or business, you received $600 or more of interest on a Specified Passenger Vehicle Loan (SPVL) during the calendar year.
• 2025 is a transition year for reporting, but not for the deduction. Notice 2025-57 lets lenders satisfy 2025 reporting by making total interest available to borrowers (online portal, monthly statement, year-end statement) by January 31, 2026. No 1098-VLI is filed with the IRS for 2025. Penalty relief applies. Borrowers can still claim the deduction for 2025; their right to deduct does not depend on receiving the form.
• The $600 threshold is per loan, per borrower, per year. Not per relationship. If one borrower has two qualifying loans with you, and each crosses $600 in interest, you file two Forms 1098-VLI.
• You file through IRIS, not FIRE. FIRE retires December 31, 2026. The first mandatory year for 1098-VLI (calendar year 2026, returns due in early 2027) lines up with IRIS becoming the only road. Your filing infrastructure has to be IRIS-ready before the form even drops.
• The data you need probably is not all sitting in your loan-servicing system today. VIN, original-use status, US-final-assembly status, loan origination date versus acquisition date, refinancing history, first-lien status, and SPVL ratio allocation come from collateral records, dealer documents, lien filings, and origination notes. Lenders that wait until December 2026 to assemble this will not file cleanly.

What Is Form 1098-VLI?

Form 1098-VLI (Vehicle Loan Interest Statement) is a new IRS information return that lenders use to report interest received on certain personal-use vehicle loans starting in calendar year 2026. It is the operational counterpart to the new car loan interest deduction created by the One Big Beautiful Bill Act of 2025.

The policy reversal here is unusual. Since the Tax Reform Act of 1986, personal interest (interest paid by individuals on consumer loans that are not home mortgages or qualified student loans) has not been deductible. Car loan interest sat in that disallowed bucket for nearly four decades. Section 70203 of OBBBA carved a narrow, temporary exception.

New IRC §163(h)(4) allows an individual to deduct up to $10,000 per year of "Qualified Passenger Vehicle Loan Interest" (QPVLI), subject to MAGI phaseouts starting at $100,000 (single) and $200,000 (joint). The deduction is available for tax years 2025 through 2028 only. It sits on the new Schedule 1-A, Part IV, and the total flows to Form 1040 line 13b. It is available to itemizers and standard-deduction filers alike, and it does not reduce AGI.

That is the borrower side. The reporting side is new IRC §6050AA, which requires anyone who, in the course of a trade or business, receives $600 or more of interest on a Specified Passenger Vehicle Loan from an individual, decedent's estate, or nongrantor trust during the calendar year to file an information return with the IRS and furnish a statement to the payer of record. The IRS implemented §6050AA with Form 1098-VLI. The first official, OMB-approved version is the December 2026 revision: Form 1098-VLI (Cat. No. 95868I) with accompanying instructions (Cat. No. 95934D), both carrying OMB Control No. 1545-2334.

If you are a bank, credit union, captive finance arm, indirect lender, finance company, or a dealer who carries paper, you are squarely in scope. This is true even if lending is not your core business. See the dealer-financing example below.

Form 1098-VLI Timeline: Key Dates

The compressed runway matters. For a high-volume auto lender, the effective preparation window (from "we have proposed regs and a draft form" to "first interest payment counts toward a 1098-VLI you will file") is essentially calendar year 2026. Treat 2026 the way conscientious payroll teams treated 2019: as the year your data, your servicing system, your statement vendor, and your e-file path all have to converge.

Notice 2025-57: 2025 Transition Relief Explained

Notice 2025-57 is the single most important piece of guidance for 2025. Read it carefully if you have not.

For calendar year 2025 only, the IRS will treat a lender as having satisfied its §6050AA reporting obligation, and will not impose §6721 (failure to file) or §6722 (failure to furnish) penalties, if the lender makes a statement available to the borrower showing the total interest received on the SPVL in 2025. Acceptable channels are:

• An online portal the borrower can easily access (your existing member or customer online banking is fine).
• A regular monthly statement that surfaces year-to-date interest.
• An annual statement provided to the borrower.
• "Other similar means designed to provide accurate information to the buyer regarding interest received."

For most banks and credit unions the practical implication is straightforward: a December 2025 statement (or January 2026 year-end statement) showing "YTD Finance Charges," the line item nearly every loan-servicing system already produces, meets the bar. You do not need to issue a Form 1098-VLI for 2025. You do not file anything with the IRS for 2025. You do not have to make any judgment about whether the vehicle or the borrower actually qualifies for the deduction.

That last point is worth underlining. Under Notice 2025-57, your statement covers interest on the loan. The borrower (with their tax preparer) determines whether their vehicle meets the original-use, US-final-assembly, GVWR, and personal-use tests, and whether their MAGI lets them claim the deduction. You are not gatekeeping the deduction in 2025. America's Credit Unions and other industry groups have asked the IRS to confirm this principle applies for 2026 and beyond, and to provide safe-harbor protections for lenders making good-faith compliance efforts. The proposed regulations partially respond by mandating a borrower-facing legend on Copy B telling the recipient the amount "may not be fully deductible." More on that below.

For 2026 and forward, the relief disappears. Real Form 1098-VLI reporting begins, the $600 per-loan trigger applies, IRS filing is mandatory, and penalties run.

Two cautions on the 2025 relief:

1. It only covers 2025. Interest received in CY 2026 is fully in scope for Form 1098-VLI even though final regulations may not be issued at the moment your servicing system has to start tagging records.
2. It does not extend to the underlying loan-eligibility data. If you do not start capturing VIN, original-use status, US-final-assembly status, loan origination date, and first-lien status on every consumer vehicle loan you originate or acquire in 2025, you will be reconstructing that data in late 2026 under deadline pressure. Use 2025 as a backfill year, not a year off.

Who Must File Form 1098-VLI?

You must file Form 1098-VLI if you receive, in the course of your trade or business, $600 or more of interest on any one SPVL during the calendar year from an individual, decedent's estate, or nongrantor trust.

A few clarifications the instructions make explicit, and several that follow from the proposed regulations:

• The $600 threshold is per SPVL, not per borrower. If one borrower has three qualifying loans with you (a car, a pickup, a motorcycle), and each one crossed $600 in 2026 interest, you file three Forms 1098-VLI. The $600 thresholds do not aggregate across loans.
• "In the course of your trade or business" is the trade-or-business test, not the lending-business test. A dealer who carries a buy-here-pay-here loan secured by a first lien on the vehicle is filing in the course of their dealer trade or business. They file. By contrast, a physician who loans a friend money to buy a car and takes a first lien is not in any lending trade or business and does not file. The instructions give exactly this example.
• The payer of record is the principal borrower as carried on your books. If you have co-borrowers and your records do not designate a principal, you must designate one. Only one Form 1098-VLI is filed per SPVL, to the payer of record, even if payments flow in from a third party (for example, a parent paying on the kid's loan).
• Servicers and collection agents who are first to receive the interest file. If your servicing bank is collecting interest on behalf of another lender, the servicer files (using its own name and TIN as the recipient/lender) unless an exception applies. The originating lender does not file in that case.
• Non-U.S. recipients file if the interest is received in the United States. If received outside the U.S., a foreign recipient files only if it is a controlled foreign corporation or has at least 50% U.S.-effectively-connected gross income over the relevant period (Proposed Regulations §1.6050AA-1(c)).
• Do not file if the payer of record is a nonresident alien individual, foreign nongrantor trust, or foreign estate. Document the payer's status with the appropriate Form W-8 or documentary evidence as described in Reg. §1.1441-1(e)(4) or §1.6049-5(c).
• Loans to related parties under §267(b) or §707(b)(1) are not SPVLs. No reporting.
• Loans without a first lien at origination are out. If the loan was not secured by a first lien on the APV at the time the loan was incurred, no 1098-VLI is required, and the borrower cannot deduct the interest either.

Lender of Record: a defined term that matters

The IRS instructions define a concept worth naming up front: the Lender of Record. The lender of record is the person who, at the time the SPVL is made, is named as the lender on the loan documents and whose right to receive payment is secured by the borrower's APV. The instructions are explicit: even if the lender of record intends to sell or transfer the SPVL to a third party after closing, that intention does not change who the lender of record is.

This matters for indirect lenders, securitization sponsors, originate-to-sell shops, and any captive finance arm that flips paper regularly. Lender-of-record status at origination drives who is responsible for capturing the data, even if the loan changes hands later that day. Coordinate the data-handoff to acquirers explicitly.

A subtler point on the trade-or-business test

An auto manufacturer's captive finance subsidiary, an indirect lender that buys paper from dealers, and a credit union holding directly-originated paper are all clearly in. Less obviously, a fintech that originates loans and immediately sells the receivables to a bank is still likely "in the course of" a lending trade or business until it sells. The question of who files post-sale depends on who is the holder of record at the time interest is received. Coordinate with your acquirers and assignees so the same dollar of interest is not reported twice, or missed entirely.

What Is a Specified Passenger Vehicle Loan (SPVL)?

An SPVL is any indebtedness:

1. Incurred after December 31, 2024,
2. For the purchase of an Applicable Passenger Vehicle (APV),
3. For personal use, and
4. Secured by a first lien on that APV.

That sounds tidy. In practice, three rules quietly do most of the work.

The "purchase amount plus customarily financed items" rule. A loan is an SPVL only to the extent it finances the purchase of the APV and "other items or amounts customarily financed in connection with the purchase of an APV that are part of the same purchase transaction." The instructions specifically include vehicle service plans, extended warranties, sales taxes, and vehicle-related fees. The proposed regulations clarify that "customarily financed" is determined on an industry-wide basis, not by reference to the financing terms of any particular lender. Title and registration fees, dealer doc fees, GAP insurance, tire-and-wheel plans, and similar at-point-of-sale add-ons that the industry generally finances qualify.

What is excluded: indebtedness incurred to purchase collision and liability insurance, indebtedness for property unrelated to the APV (the classic example is a trailer or a boat bundled into a single finance contract), and amounts incurred to repay negative equity on a trade-in. If a loan includes both qualifying and non-qualifying items, you must allocate. Only the interest attributable to the qualifying portion is reported on Form 1098-VLI.

A worked allocation example. Suppose a borrower finances $35,000 for a qualifying new pickup, $4,000 of negative equity on a trade-in, $1,500 in sales tax, and $1,000 in extended warranty, for a total loan of $41,500. The qualifying SPVL portion is $35,000 (vehicle) + $1,500 (tax) + $1,000 (warranty) = $37,500. The non-qualifying portion is $4,000 (negative equity). The SPVL fraction is $37,500 / $41,500, or roughly 90.36%. Each year, you report 90.36% of the interest received as Box 1 SPVL interest.

This pro-rata math is the single most common operational gap in lender systems today. Almost no consumer loan servicing system tracks principal-by-purpose at this granularity natively. You will need to compute the qualifying ratio at origination, store it as loan-level metadata, and apply it to interest received each period.

The first-lien rule. The lien must be a valid and enforceable first lien on the APV at the time the loan was incurred, with priority ahead of all other security interests. Springing liens that may attach later (a tax lien arising from unpaid state property taxes, for example) do not retroactively disqualify the loan, but if you do not take a first lien at origination, you cannot cure into SPVL status later.

The personal-use rule. Business, commercial, fleet, ride-share-dedicated, and similar uses disqualify the loan. The proposed regulations frame personal use as expected primary use at the time the loan is incurred. Incidental business use does not break personal-use status, but vehicles primarily used in a trade or business are out. The borrower bears the use-test responsibility; the lender relies on the borrower's representation in the loan application.

What Is an Applicable Passenger Vehicle (APV)?

An APV is a vehicle that satisfies all six of the following:

• Original use begins with the purchaser.
• It is a motor vehicle manufactured primarily for use on public streets, roads, and highways (not rail).
• It has at least 2 wheels.
• It is a car, minivan, van, sport utility vehicle, pickup truck, or motorcycle.
• It has a gross vehicle weight rating of less than 14,000 pounds.
• Final assembly occurred within the United States.

Three of these rules are doing real work.

Original use. Original use begins with the first person who takes delivery of an APV that has been sold, registered, or titled. Used vehicles do not qualify. Leases that convert to purchase generally do not qualify because original use began under the lease.

The instructions and proposed regulations handle the dealer-operations edge cases:

• A dealer's own test-drive or demonstrator use does not begin original use, provided the dealer does not register or title the vehicle in its own name.
• A non-dealer purchaser whose loan documents treat the vehicle as new can satisfy the original-use test even if the dealer used the vehicle as a demo (within the parameters above).
• A return within 30 days of delivery does not start original use; a subsequent purchaser whose loan documents treat the vehicle as new can be the first original user.

For lenders, the practical implication is: rely on the dealer's representation and the loan documentation. If the contract treats the vehicle as new and the VIN matches a vehicle the dealer has not titled to itself, you have a basis to treat the loan as an SPVL.

US final assembly. Final assembly must have occurred in the United States. The compliance-grade source is position 11 of the 17-character VIN (the plant code, per 49 CFR §565.15), cross-referenced against the manufacturer's plant location, or the final-assembly point disclosed on the Monroney label. The IRS guidance permits reliance on either source. Vehicles assembled in Canada, Mexico, or overseas, even if sold under U.S. nameplates, do not qualify.

This is the most common reason a vehicle that looks domestic turns out not to qualify. Your origination workflow should capture the VIN, decode position 11, and validate against an up-to-date plant list. (Plant codes change as manufacturers open and close lines.) Capture the validation result at origination so you do not relitigate it every December.

Vehicle category and GVWR. Cars, minivans, vans, SUVs, pickups, and motorcycles only. RVs and motor homes are out. The 14,000-pound GVWR cap excludes Class 4 medium-duty trucks and up. Pull GVWR from the federal certification label, not from sales-brochure curb-weight figures.

Substitute APV after total loss. If an APV is replaced under the loan with a substitute APV because of an unforeseen intervening event (the classic example: total loss with insurance proceeds rolling to a replacement under the same loan), you must report the VIN of the substitute APV on Form 1098-VLI going forward. The loan continues to qualify; you just update the collateral data.

How to Complete Form 1098-VLI: Box-by-Box

The December 2026 instructions walk through each box. Here is a working filer's read.

RECIPIENT'S/LENDER'S name, address, telephone number. This is you, the entity filing the form and receiving the interest. Use the same name and address on Form 1096 if you are filing on paper (which, given the 10-return e-file threshold, almost no one will). If you are a servicer filing on behalf of a holder, use the servicer's name, address, and TIN.

PAYER OF RECORD'S name and address. The principal borrower on your books. If you have co-borrowers and no designated principal, designate one. The instructions permit truncation of the payer's TIN (SSN, ITIN, ATIN, or EIN) on the recipient-furnished Copy B under Reg. §301.6109-4, but never on the copy filed with the IRS. Truncation of the recipient/lender TIN is not permitted on any copy. See Part J of Pub. 1099 (General Instructions for Certain Information Returns) for full truncation rules.

Account number. Required if you have multiple accounts for a borrower for whom you are filing more than one Form 1098-VLI. The IRS encourages designating an account number on all 1098-VLIs you file. If you use Morado, your loan or account ID flows through automatically.

Box 1, Vehicle loan interest received by lender. The total SPVL interest received from the payer of record during the calendar year. Exclude any prepaid interest that does not meet the prepaid-interest exception (see "The January 15 prepaid-interest rule" below). Exclude late fees, NSF fees, default fees, and repossession-related charges. Exclude interest on the non-qualifying portion of a mixed-purpose loan (apply your origination SPVL ratio). Exclude interest paid on trade-in payoff amounts, collision insurance financing, or boat/trailer financing bundled into the same contract.

Boxes 2a / 2b / 2c, Year, Make, Model. The vehicle's model year, manufacturer name, and model designation. Use the data on the title or the dealer purchase order, not the marketing trim name.

Box 2d, VIN. The 17-character VIN of the APV. VIN characters never include I, O, or Q (to avoid confusion with 1 and 0). A blank, short, or invalid VIN here breaks the borrower's ability to substantiate the deduction. Validate at origination and revalidate before filing.

Box 3a, Loan origination date. The date the SPVL was originated by the original lender, regardless of whether you originated it or acquired it.

Box 3b, Loan acquisition date. If you acquired the SPVL from another holder, the date you acquired it. Leave blank if you originated the loan. This box matters operationally: if a loan changed hands mid-year, the original holder reports interest received up to the transfer date and the new holder reports interest received from the acquisition forward. Both parties file Forms 1098-VLI, and both furnish Copy B to the borrower.

Box 4, Outstanding principal. The outstanding SPVL principal as of January 1 of the reporting year. If you originated the loan during the year, report the SPVL principal as of origination. If you acquired the loan during the year, report the outstanding SPVL principal as of acquisition. This is the SPVL-qualifying principal, not gross loan principal. Apply your origination SPVL ratio.

Box 5, Refund of overpaid interest. Total refund or credit of a prior-year overpayment of SPVL interest. See the reimbursements section below.

The form also surfaces vehicle data (make, model, year, VIN), which means your data pipeline has to merge servicing data (interest, principal) with collateral data (vehicle attributes) cleanly. If those two systems do not talk, you have engineering work to do.

The January 15 prepaid-interest rule

Prepaid SPVL interest belongs on the Form 1098-VLI for the year in which it properly accrues, not the year it was received. The instructions and Proposed Reg. §1.6050AA-1(b)(2) provide a narrow exception: interest received during the current year that will properly accrue in full by January 15 of the following year may be reported on the current year's 1098-VLI.

If any part of an interest payment accrues after January 15, only the portion that properly accrues by December 31 of the current year is reportable on the current year's 1098-VLI. The rest goes on the following year's form. The IRS modeled this on the long-standing §6050H mortgage interest rule, so credit unions and banks with mortgage filings already in production will recognize the mechanic.

Example: you receive an interest payment that accrues from December 20 through January 20. You cannot report any of the post-December-31 interest on the current year's form. The amount that accrues from December 20 to December 31 goes on this year's Box 1. The rest goes on next year's.

Refinancing, Change of Obligor, and Loan Acquisitions

Refinancing. A refinanced loan is itself an SPVL if it is secured by a first lien on the same APV, but only to the extent of the outstanding balance of the refinanced loan as of the refinancing date. Any cash-out portion is not SPVL principal. Allocate principal and interest pro-rata between the SPVL portion and the cash-out portion.

Worked example: Original SPVL principal $30,000, paid down to $22,000. Borrower refinances for $25,000 (taking $3,000 cash out). The new loan's SPVL portion is $22,000. The SPVL ratio of the new loan is 88%. You report 88% of each period's interest as Box 1 SPVL interest going forward.

If the refinancing involves a change in obligor (for example, a sale of the vehicle with the buyer assuming the loan), the new loan is generally not an SPVL for the new obligor. The single exception: refinancing in connection with a change in obligor resulting from the original obligor's death. In that case, SPVL status carries forward to the inheritor.

Change of obligor (no refinancing). A loan ceases to be an SPVL if the original obligor ceases to be the obligor and another individual becomes the obligor, unless the change is because of the original obligor's death. Sale-and-assumption arrangements drop the loan out of SPVL status. Death-driven inheritance keeps it in.

Mid-year loan acquisitions. If you acquire an SPVL from another holder during the year, you report interest received from the acquisition date forward, complete Box 3b (loan acquisition date) and Box 3a (original origination date), and report outstanding principal as of acquisition in Box 4. The seller reports the interest received during their portion of the year on a separate Form 1098-VLI. The borrower receives two Copy Bs, one from each holder.

If you are a recurring buyer of paper (indirect lenders, securitization trusts that own loans through a servicer), build the data-handoff into your acquisition workflow. The seller has to give you original origination date, VIN, original SPVL principal and SPVL ratio, and outstanding qualifying balance as of acquisition. If you acquire portfolios from a seller who did not capture this data, you have an evidentiary problem you will discover at year-end.

Reimbursements of Overpaid Interest

You are required to report reimbursements of overpaid SPVL interest totaling $600 or more to a payer of record on Form 1098-VLI. Smaller reimbursements are optional but follow the same rules if you choose to report.

A reimbursement must be reported on the Form 1098-VLI for the year in which the reimbursement is made, never by amending a prior-year Form 1098-VLI. Only the person who actually makes the reimbursement files. If you acquired a loan and refunded interest the prior holder originally collected, you (the refunder) file, not the prior holder.

Example, straight from the instructions. In the previous year you received $5,000 of SPVL interest and reported it on 1098-VLI. This year you determined the borrower had overpaid by $500 and you refunded it. If you received $600 or more of interest from the borrower this year, you report the $500 refund in Box 5 of this year's 1098-VLI. The prior year's form stays as filed.

If instead of refunding cash you credited the overpayment against the current year's interest payments due, Box 5 still shows the $500, and Box 1 (interest received) for the current year is computed as if the borrower had paid that $500 in interest (it now includes the credit).

If you reimburse interest in the same year it was overpaid, do not report the overpayment. Net the overpayment out of Box 1 and do not populate Box 5.

If you pay interest on the reimbursement itself, that interest belongs on Form 1099-INT, not Form 1098-VLI.

Collection Agents, Servicers, and Foreign Recipients

The first person to receive or collect the SPVL interest in a servicing chain is usually the filer. A servicing bank collecting payments for an originating lender files Form 1098-VLI as the recipient, even though the cash gets passed through to the lender. The originating lender does not file in that case.

A narrow exception: if the first person to receive the interest does not have the information needed to file (for example, a pure cash-handler that does not have the loan-level data), and the person on whose behalf the interest is collected would receive the interest in their trade or business if paid directly, the person on whose behalf the interest is collected files instead. In practice, most servicers do have the data and they file.

Foreign recipients follow the rules in Proposed Regulations §1.6050AA-1(c). If the interest is received in the United States, file Form 1098-VLI. If received outside the United States, file only if you are a controlled foreign corporation or had at least 50% U.S.-effectively-connected gross income for the three-year period ending with the close of the tax year preceding the receipt.

Do not file Form 1098-VLI when the payer of record is a nonresident alien individual, foreign nongrantor trust, or foreign estate. Instead, document the payer's foreign status with the appropriate Form W-8 (interest paid in the U.S.) or documentary evidence (interest paid outside the U.S.) and retain the documentation.

Furnishing Form 1098-VLI Copy B to Borrowers

You must furnish a statement to the payer of record. The IRS provides a fillable online PDF Copy B at IRS.gov/Form1098VLI for ease of statement furnishing and recordkeeping.

The statement must be furnished by January 31 of the year following the calendar year of the interest. For CY 2026 interest, the borrower's Copy B is due January 31, 2027.

You can truncate the payer's TIN on the borrower's Copy B (last four digits visible, the rest masked, per Reg. §301.6109-4). Do not truncate on any copy filed with the IRS. Do not truncate the recipient/lender TIN on any copy.

You can satisfy the furnishing requirement electronically if the borrower has consented in accordance with the consumer-consent rules in Reg. §1.6050A-1(e) (or the analog the IRS will publish under final §1.6050AA furnishing-specific rules, expected to mirror the existing framework). If you currently furnish 1098 (mortgage interest) or 1099-INT statements electronically with prior consumer consent, the same consent framework will almost certainly apply.

Most lenders will use the same statement-furnishing vendor for 1098-VLI as for 1098 and 1099-INT, which is the right move. The borrower experience should be unified.

What the borrower's Copy B says, verbatim

Your borrower's Copy B carries a required caution legend. Your support team should expect calls about it.

Caution: The amount shown may not be fully deductible by you. Limits based on the amount of interest paid, your income, and the passenger vehicle may apply. Generally, you may only deduct interest to the extent it was incurred by you, actually paid by you, and not reimbursed by another person.

And the Box 5 instruction the borrower reads on Copy B, also verbatim:

Box 5. Do not deduct this amount. It is a refund for overpayment(s) of interest you made in a prior year or years. If you took a deduction for this amount in the year(s) you paid the interest, you may have to include part or all of this amount on the "Other income" line of your calendar year Schedule 1 (Form 1040). No adjustment to your prior year(s) tax return(s) is necessary.

The caution legend is a deliberate IRS signal that lenders are not gatekeeping eligibility. America's Credit Unions specifically asked for this protection in their comment letter on the proposed regulations. If a borrower calls you confused about whether they can deduct the full Box 1 amount, point them to the legend, point them to their tax professional, and do not try to make the call for them.

Filing Form 1098-VLI Through IRIS

The Taxpayer First Act of 2019 authorized regulations that lowered the e-file threshold for information returns to 10 (aggregated across all information return types), effective for returns required to be filed on or after January 1, 2024 (T.D. 9972). For any commercial lender or dealer, you are over the threshold automatically. You will file electronically.

Electronic filing of Form 1098-VLI is through the IRS's Information Returns Intake System (IRIS). The legacy FIRE system retires on December 31, 2026, which is precisely when the first calendar year of mandatory 1098-VLI reporting (CY 2026) closes. You do not have the option of building a FIRE workflow for 1098-VLI. Everyone files through IRIS. (For the full FIRE-to-IRIS transition context, see our complete IRS FIRE to IRIS transition guide.)

IRIS supports two intake channels:

• The IRIS Taxpayer Portal. Web-based, free, supports manual entry or CSV upload of up to 250 records per file. Suitable for very small filers.
• The IRIS A2A channel. XML-over-SOAP API for high-volume filers. Requires a Transmitter Control Code (TCC), Application Client ID, and passing the Assurance Testing System (ATS) before going to production.

A few realities about IRIS that especially matter for 1098-VLI:

• TIN/Name validation is real-time at submission. Mismatches are flagged immediately. For 1098-VLI, the payer of record's TIN has to match IRS records. If your borrower onboarding does not include TIN solicitation and W-9 validation, you will see real-time rejections at scale.
• You need an IRIS TCC. Your FIRE TCC does not migrate. Apply through IRS e-Services. IRIS assigns TCCs by form family. The 1098 family, which 1098-VLI belongs to, requires its own application unless you have already obtained TCCs for the 1098 family for other filings.
• The 1098-VLI XML schema is finalizing in 2026. The IRIS schema package for tax year 2026 (filing season early 2027) will include the 1098-VLI variant. Lock-down is expected by Q3 2026 to allow ATS testing in the fall. Build to the schema as soon as it ships.
• A2A filers complete ATS once per form family. If you have already passed ATS for 1099-INT or 1098 mortgage interest, you generally do not have to retest from scratch for 1098-VLI, but you must verify with IRS e-Help when the 1098-VLI variant ships.
• State filing is separate. IRIS does not transmit to states. Combined Federal/State Filing (CF/SF) participation for 1098-VLI is to be determined, and given that no state currently requires a parallel form, expect this to be federal-only for the foreseeable future.

Recipient statement deadline: January 31, 2027 (for CY 2026 returns). IRS filing deadlines for CY 2026 returns are February 28, 2027 (paper, irrelevant for almost everyone) and March 31, 2027 (e-file). You can request a 30-day extension on the IRS filing deadline using Form 8809. Extensions on the borrower-furnishing deadline are tighter and only granted for narrow hardship reasons.

If you are already using Morado, none of this is your problem to architect. Morado is an IRS-listed Transmitter A2A. We hold the TCCs, we ship the XML to IRIS, and we handle ATS testing each year for every form family in scope. Your data goes in (CSVs, Excel, system extracts). Copy B and the IRS submission come out.

1098-VLI Penalties: §6721 and §6722

The §6721 (failure to file) and §6722 (failure to furnish payee statement) penalty structure applies to Form 1098-VLI from CY 2026 forward.

For returns required to be filed in 2027 (CY 2026), under Rev. Proc. 2025-32:

The §6721 and §6722 penalties stack. A single missed 1098-VLI that should have been both filed with the IRS and furnished to the borrower exposes you to $680 base penalty per record (2 × $340), and up to $1,380 per record for intentional disregard (2 × $690).

A few practical risk vectors specific to 1098-VLI:

• The form is new, so error rates will be high industry-wide. The IRS generally exercises reasonable-cause discretion on first-year information returns. Document your good-faith effort: when you started capturing required data, what your validation processes are, what your remediation cadence is.
• VIN errors will be a top source of rejection. Build VIN check-digit validation (the standard ISO 3779 algorithm using position 9) into your filing pipeline. Most servicing systems do not.
• Mismatched TINs will trigger real-time IRIS rejections, not later CP2100 notices. Plan for resolution within filing window, not after.
• 2025 reporting under Notice 2025-57 carries no §6721/§6722 exposure if you make the alternative statement available by January 31, 2026. The 2026 forward exposure is real.

Data Lenders Must Capture for Form 1098-VLI

A working list of data fields required for a clean Form 1098-VLI, mapped to where they typically live in a lender's stack:

If you read that table and most of the right-hand column is empty for your shop, you are in the majority. The single highest-leverage 2025 investment is data capture at origination, not filing infrastructure. Filing is solvable in a quarter. Backfilling a year of originations that did not capture VIN, original use, and final-assembly status is not.

Morado's 1098-VLI workflow assumes most of this data lives across at least two of your systems (loan servicing and collateral) and ingests both. We normalize, validate at field level (VIN check-digit, US-assembly lookup against current NHTSA plant data, TIN format and matching), and produce both the borrower-furnished Copy B and the IRS-submitted record. If your data has gaps, our preflight tells you exactly which loans we cannot file cleanly and why (borrower, loan, field, root cause) before anything goes to the IRS.

The Car Loan Interest Deduction: What Borrowers Are Doing With Form 1098-VLI

You are not gatekeeping the deduction, but understanding how the borrower uses Form 1098-VLI helps with the support calls you will absolutely get.

For tax year 2025: the borrower uses your alternative statement (under Notice 2025-57) to compute total interest paid. They self-determine eligibility (US-final-assembly, original use, GVWR, personal use, MAGI). They report on the new Schedule 1-A (Form 1040), Part IV, which flows to Form 1040 line 13b. The deduction is available whether they itemize or take the standard deduction. It is not above-the-line; it sits between AGI and taxable income, so it does not reduce AGI for purposes of AGI-tested items (Roth IRA phaseouts, IRMAA, and similar).

For tax year 2026 and forward: the borrower receives Form 1098-VLI Copy B from you in late January 2027. They use Box 1 as their reported interest. They self-determine eligibility (the form does not certify deductibility). They report on Schedule 1-A. Same flow.

Phaseout math, for support-team reference: the deduction begins to phase out at $100,000 MAGI (single/HOH) or $200,000 MAGI (MFJ). It phases down by $200 per $1,000 of MAGI (or portion thereof) over the threshold. Full phase-out at $150,000 single / $250,000 MFJ. Maximum deduction is $10,000 per year regardless of how much interest the borrower paid. The $10,000 limit applies per return, so two married-filing-jointly taxpayers share one $10,000 cap.

A definition you will get asked about: "Modified Adjusted Gross Income" for purposes of this phaseout is AGI plus any amounts excluded from gross income under §911 (foreign earned income), §931 (income from Guam, American Samoa, Northern Mariana Islands), or §933 (Puerto Rico). For most domestic borrowers, MAGI equals AGI.

Borrowers will call you about three things:

1. "Is my vehicle eligible?" You can give them the framework (new, US-final-assembly, GVWR < 14,000 lbs, personal use), but eligibility determination is theirs. Refer them to their tax professional for anything beyond confirming what your records say.
2. "Why did I not get a 1098-VLI for 2025?" Notice 2025-57. Direct them to their year-end statement or online portal for total interest.
3. "Why is not all my interest in Box 1?" Because you applied the SPVL ratio. Show them the math from origination: the qualifying portion vs. the non-qualifying portion (negative equity, bundled boat, and similar). This is where good origination documentation pays off.

State Conformity

As of mid-2026, no state has enacted a parallel car loan interest deduction or a state version of Form 1098-VLI.

The federal deduction sits at IRC §63(b)(7), after AGI, before taxable income. In most rolling-conformity states (those that compute state taxable income off of federal AGI), the deduction has no automatic flow-through because it does not reduce AGI. In static-conformity states (California is the headline example, with conformity tied to a fixed historical IRC date), the deduction does not apply at the state level absent a state-level conforming bill.

The lender takeaway: you have no state filing or reporting obligation associated with Form 1098-VLI today. If a state later adopts a parallel form or asks for piggyback data, the data fields you are capturing for federal filing will most likely satisfy it, so build for federal and you will be ready for state. As always, IRIS does not file with states, and federal IRIS submission does not satisfy any state filing.

Frequently Asked Questions

Who files Form 1098-VLI?

Any person engaged in a trade or business who receives $600 or more in interest from an individual, decedent's estate, or nongrantor trust on a Specified Passenger Vehicle Loan (SPVL) during the calendar year. This includes banks, credit unions, captive finance arms, indirect lenders, finance companies, and dealers who carry their own paper. Loans to related parties under §267(b) or §707(b)(1) are not SPVLs and do not require filing.

When is Form 1098-VLI due?

For calendar year 2026 returns (the first mandatory year), Copy B must be furnished to borrowers by January 31, 2027. The IRS filing deadline is February 28, 2027 (paper) or March 31, 2027 (e-file). The 10-return e-file threshold means almost every commercial lender files electronically through IRIS. Calendar year 2025 has separate transition-relief rules under Notice 2025-57.

What is a Specified Passenger Vehicle Loan (SPVL)?

An SPVL is any indebtedness incurred after December 31, 2024, for the purchase of an Applicable Passenger Vehicle (APV) for personal use, and secured by a first lien on that APV. Only the portion of the loan that financed the vehicle plus customarily-financed items (sales tax, vehicle service plans, extended warranties, vehicle-related fees) qualifies. Negative equity on a trade-in, collision and liability insurance, and amounts for property unrelated to the APV (a boat or trailer bundled into the contract) are excluded.

What is an Applicable Passenger Vehicle (APV)?

An APV is a vehicle with original use beginning with the purchaser, manufactured primarily for public roads, with at least 2 wheels, classified as a car, minivan, van, SUV, pickup truck, or motorcycle, with a gross vehicle weight rating of less than 14,000 pounds, and final assembly within the United States. Used vehicles, leases, and vehicles assembled outside the United States do not qualify.

How much can a borrower deduct under the new car loan interest deduction?

Up to $10,000 per tax return per year, available for tax years 2025 through 2028. The deduction phases out at $200 per $1,000 of MAGI over $100,000 (single or head of household) or $200,000 (married filing jointly), fully phasing out at $150,000 single or $250,000 joint. The deduction is available whether the taxpayer itemizes or takes the standard deduction, reported on the new Schedule 1-A, Part IV, flowing to Form 1040 line 13b. It does not reduce AGI.

Do lenders have to file Form 1098-VLI for 2025?

No. Under IRS Notice 2025-57, lenders satisfy their §6050AA obligation for calendar year 2025 by making total interest information available to borrowers (online portal, monthly statement, year-end statement, or similar means) by January 31, 2026. No Form 1098-VLI is filed with the IRS for 2025. Penalty relief under §6721 and §6722 applies. Real Form 1098-VLI reporting begins with CY 2026 interest, filed in early 2027.

What is the penalty for failing to file Form 1098-VLI?

For returns required to be filed in 2027 (CY 2026 returns), the base §6721 penalty is $340 per return, rising to $690 per return for intentional disregard. The same scale applies to §6722 failure-to-furnish penalties on Copy B. A single missed 1098-VLI that should have been filed with the IRS AND furnished to the borrower stacks to $680 base, or $1,380 for intentional disregard. Annual caps apply: $4,191,500 for filers with gross receipts over $5M, $1,397,000 for smaller filers.

How do you file Form 1098-VLI with the IRS?

Through IRIS (the Information Returns Intake System). The legacy FIRE system retires December 31, 2026, so FIRE is not an option for Form 1098-VLI. IRIS supports two channels: the IRIS Taxpayer Portal (free, web-based, CSV upload up to 250 records) and the IRIS A2A channel (XML-over-SOAP API for high-volume filers). You need an IRIS-specific Transmitter Control Code (TCC) for either channel.

What data does a lender need to file Form 1098-VLI?

Borrower name and TIN, account number, calendar-year SPVL interest received, outstanding SPVL principal, loan origination date, loan acquisition date (if acquired), and full vehicle data (year, make, model, 17-character VIN). The VIN supports the borrower's deduction substantiation. Position 11 of the VIN (the plant code under 49 CFR §565.15) and original-use status need to be captured at origination, not reconstructed at year-end.

How does the SPVL ratio work for mixed-purpose vehicle loans?

If a loan finances both qualifying items (vehicle, sales tax, warranties, dealer fees, GAP) and non-qualifying items (negative equity, bundled boat or trailer, collision insurance), the lender must allocate. Only interest attributable to the qualifying portion is reported on Form 1098-VLI Box 1. Compute the SPVL ratio at origination and apply it to each period's interest. Most servicing systems do not track principal-by-purpose natively, so this calculation is usually a new system requirement.

Does Morado support Form 1098-VLI filing?

Yes. Morado's information-return pipeline files directly to the IRS through IRIS as an IRS-listed Transmitter A2A. Form 1098-VLI support is built into the same pipeline, and ships the moment the IRS moves the form from draft to production. The pipeline ingests loan-servicing and collateral exports, validates VIN check-digit and US-final-assembly and TIN match in preflight, computes the SPVL ratio where you do not have it, generates Copy B, and submits the IRS record through IRIS A2A.

What is the difference between Form 1098 and Form 1098-VLI?

Form 1098 reports mortgage interest under §6050H. Form 1098-VLI is a separate, brand-new form under §6050AA that reports vehicle loan interest. They are different forms with different filing requirements, but they share IRIS infrastructure and similar mechanics (the January 15 prepaid-interest rule mirrors the §6050H rule). Lenders that already file Form 1098 will recognize most of the operational pattern.

How Morado Handles 1098-VLI

Morado's information-return pipeline already files directly to the IRS through IRIS as an IRS-listed Transmitter A2A. We have built 1098-VLI support natively into the same pipeline. The form is still in IRS draft status as of mid-2026. Morado's 1098-VLI form support ships the moment the IRS moves the form from draft to production, well ahead of the CY 2026 filing window.

What this means concretely for a lender filing 1098-VLI through Morado:

• You upload what you have. Servicing exports (interest received, principal balances, account numbers, payer data), collateral exports (VIN, year/make/model, lien status), origination records (loan dates, SPVL ratios, first-lien confirmation). Excel, CSV, or system-extract drop. We accept what your stack produces today.
• We normalize, validate, and merge. Separated name parsing, TIN format and IRS-match validation, VIN check-digit validation, US-final-assembly lookup against the current NHTSA plant data, GVWR validation where data is available, originator-holder reconciliation for acquired loans.
• We compute the SPVL ratio where you do not have it. If your origination data has gross loan principal, vehicle purchase amount, and a breakdown of customarily-financed and non-qualifying components, we compute and store the SPVL ratio per loan and apply it to each period's interest going forward.
• We surface preflight issues by loan. Before anything ships to the IRS, you see exactly which loans are clean, which have warnings (recoverable), and which are blocked (data missing or invalid). One screen, sortable by root cause.
• We file with the IRS through IRIS A2A. XML schema-conformant submissions through our TCC. You do not apply for a TCC. You do not pass ATS. You do not write XML.
• We generate borrower Copy B in PDF. Truncated TIN on the borrower copy, full TIN on the IRS copy. We can hand off to your statement-furnishing vendor or deliver directly.
• We handle corrections. If a borrower comes back with a corrected VIN, address, or interest figure, we file the correction through IRIS within the same pipeline.

Production proof: A Southern California tribal casino filed 94,000+ W-2Gs through IRIS in tax year 2025 with zero IRS rejections. The same pipeline is what your 1098-VLIs flow through. Read the full case study →

If you are currently planning to handle 1098-VLI in-house, Morado can replace the entire workflow. If you are using Sovos, Avalara, Wolters Kluwer CCH, Track1099, Tax1099, Greatland, ComplyRight, or another platform that has not published its 1098-VLI roadmap, Morado can complement your existing setup by handling the 1098-VLI data prep and IRIS filing while you continue using your current tools for everything else.

By Industry

Morado serves operators across information returns at production volume. The 1098-VLI lift is heaviest where consumer vehicle lending volume is highest:

• Credit unions and CUSOs → (direct and indirect auto, refinance portfolios, member statements; also 1099-INT, 1099-DIV, 1099-R, 5498, 1099-C)
• Casinos, sportsbooks, racetracks, and tribal gaming → (W-2G, 1099-NEC, 1042-S)
• Universities and higher education → (1042-S, 1098-T, the 1099 series)

Form 1098-VLI Preparation Checklist

A working checklist for CY 2025 and CY 2026.

For CY 2025:

• Confirm your year-end statement surfaces YTD interest. This is your alternative-statement vehicle under Notice 2025-57. If your servicing system does not already produce it, fix that now.
• Furnish by January 31, 2026. Online portal, monthly statement, year-end statement, or analog. Notify borrowers proactively that this satisfies the new federal vehicle loan interest reporting.
• Backfill data on 2025 originations. Even though no Form 1098-VLI is filed for 2025, every 2025-originated loan that will be on your books in 2026 needs VIN, US-final-assembly status, original-use status, loan origination date, first-lien confirmation, and SPVL ratio. Capture now or backfill later under deadline pressure.

For CY 2026:

• Apply for an IRIS TCC for the 1098 form family if you do not already have one. If you use Morado or a third-party transmitter, they hold the TCC.
• Confirm your filing vendor supports 1098-VLI with a published 2026 release timeline. Most vendors are quiet publicly. If you are not getting written commitments, escalate.
• Capture required data on every new origination from January 1, 2026 onward. VIN, US final assembly, original use, vehicle year/make/model, first-lien confirmation, GVWR, customarily-financed allocation, SPVL ratio.
• Build the SPVL ratio calculation into origination. Do not try to reconstruct this in December.
• Coordinate with paper-buyers and securitization servicers. Establish data-handoff requirements for any loan you sell, buy, or service for others. Decide who files for partial-year holdings.
• Build VIN validation into your data pipeline. Check-digit validation, plant-code lookup, length and character-set validation. Drop bad VINs before they hit the IRS.
• Build TIN validation into your borrower-onboarding workflow. Real-time IRIS validation means CP2100 notices arrive at submission, not in the mail.
• Confirm your statement-furnishing vendor will deliver Copy B by January 31, 2027. If you furnish electronically, confirm consumer consents under Reg. §1.6050A-1(e) or its analog.
• Plan IRIS ATS testing for fall 2026 if you are filing A2A directly. ATS opens annually in October or November. Do not wait.
• Document your good-faith compliance effort. First-year information returns historically receive reasonable-cause relief if the filer can document a serious attempt at compliance and a remediation plan for misses.

What Comes Next

The car loan interest deduction is on the books for tax years 2025 through 2028, four years. Form 1098-VLI is the operational shadow of that policy choice, and it lands at the same moment FIRE retires and IRIS becomes the only road. For lenders that file at scale, this means three changes hitting in the same window: a brand-new form to capture, a 10-return e-file threshold that essentially mandates electronic filing for any commercial operation, and a new IRS intake system to integrate with.

The lenders that come out of CY 2026 cleanly will be the ones that treated 2025 not as a year off but as a data-capture year. Filing software is solvable. Data is not, after the fact.

If you want to walk through your specific data pipeline against a sample of your real records, a free 30-minute call with a Morado engineer, book a demo. We will show you exactly which loans would file cleanly and which would block, before you commit to a workflow.

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Sources: IRS Draft Instructions for Form 1098-VLI (December 2026, Cat. No. 95934D), IRS Draft Form 1098-VLI (December 2026, Cat. No. 95868I), IRS Notice 2025-57 (2025-45 I.R.B. 692), Proposed Regulations §1.163-16 and §1.6050AA-1 (REG-113515-25, 91 FR 67), IRS Newsroom: Treasury, IRS provide guidance on the new deduction for car loan interest, OBBBA / Public Law 119-21, Section 70203, 26 U.S.C. §6050AA (Cornell LII), Rev. Proc. 2025-32 (inflation-adjusted §§6721/6722 penalty amounts), IRS Schedule 1-A: Additional Deductions (2025), Pub. 1099 General Instructions for Certain Information Returns, IRS IRIS landing page, Sovos: Car Loan Interest Deduction Guide for Auto Lenders, BDO: Generous Transition Relief Eases Auto Loan Interest Reporting, PwC: 2025 Transitional Guidance and Relief for Lenders, Carr, Riggs & Ingram: What Lenders and Borrowers Need to Know, America's Credit Unions: Comment Letter on Proposed Rules, Tennessee Valley Federal Credit Union: New IRS Rules Explained, Noon & Associates CPAs: Understanding Form 1098-VLI.