NEWS
The Internal Revenue Service is preparing for a complex tax season as taxpayers begin claiming the new auto-loan interest deduction on Form 1040. Early filings show that errors involving eligibility, income limits, and documentation are already prompting IRS notices, according to officials familiar with Treasury Department oversight.
Many early issues involve taxpayers attempting to deduct interest paid on used or pre-owned vehicles. The deduction applies only to new vehicles, and IRS data systems verify eligibility by matching vehicle identification numbers with manufacturer records. When information does not align, the agency frequently issues math-error notices or a correction notice requesting additional details.
Another recurring issue arises when taxpayers use the same vehicle for both business and personal purposes. The deduction is allowed only for personal-use vehicles. Returns showing rideshare activity, delivery work, or business mileage may receive a notice number questioning the claim. A tax professional in the tax professional community noted that mixed-use reporting has been one of the most common triggers this filing season.
A lesser-known requirement mandates that qualifying vehicles undergo final assembly in the United States. IRS reviewers can identify models assembled overseas even when sold domestically, which has resulted in several denied claims. The IRS commissioner recently emphasized the importance of accurate reporting as the agency modernizes its review tools.
Documentation problems on the tax return also generate IRS notices. Filers must include the vehicle identification number and the lender's interest information. Missing or incorrect entries may result in a correction notice requesting a response form or additional records. Some cases are paused due to concerns about identity theft or mismatched Social Security numbers, requiring further verification through secure digital correspondence or a provided access code.
The deduction phases out beginning at $100,000 for single filers and $200,000 for joint filers. Taxpayers with investment income, rental activity, or retirement withdrawals may exceed these limits once all income sources are combined under tax code rules. The Internal Revenue Service uses automated matching programs to compare reported income with claimed deductions. Discrepancies may delay processing during the filing season.
Some taxpayers have contacted the Taxpayer Advocate for assistance after receiving letter 6613 or similar correspondence requesting supporting documents. In rare cases where disputes escalate, a taxpayer may seek collection due process protections or additional review before a notice of levy or federal tax lien is considered. However, such outcomes are uncommon for deduction-related adjustments.
Taxpayers who receive IRS notices should follow the instructions outlined in the letter. The IRS recommends using certified or registered mail when submitting paper responses or uploading digital copies through the document upload tool when available. Taxpayer Assistance Centers can provide in-person support, while the National Taxpayer Advocate may assist those facing unresolved issues or delays.
If an adjustment results in a balance due, the IRS may approve a payment plan after reviewing the taxpayer’s financial details. A tax professional can help determine whether the original claim was valid and what documentation is required for resolution.
Taxpayers planning to claim the auto-loan interest deduction should confirm that the vehicle is new, assembled in the United States, and used exclusively for personal purposes. Maintaining accurate interest statements, purchase records, and VIN documentation can help avoid disputes with the Internal Revenue Service.
Individuals uncertain about their eligibility or record-keeping requirements may consult a tax professional before filing their tax return. Careful preparation and accurate reporting significantly reduce the likelihood of IRS notices during the tax season.
By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now
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