The Treasury Department and IRS have finalized regulations regarding the deduction of up to $10,000 in personal car loan interest by individuals for tax years 2025 through 2028. This includes regulations on information returns required to be filed by a lender or other person engage in a trade or business who receives $600 or more of qualified interest during the calendar year. The final regulations adopt the proposed regulations published in January 2026 (NPRM REG-113515-25) with some changes in response to public comments.

The Treasury Department and IRS have finalized regulations regarding the deduction of up to $10,000 in personal car loan interest by individuals for tax years 2025 through 2028. This includes regulations on information returns required to be filed by a lender or other person engage in a trade or business who receives $600 or more of qualified interest during the calendar year. The final regulations adopt the proposed regulations published in January 2026 (NPRM REG-113515-25) with some changes in response to public comments.

Qualified Personal Vehicle Loan Interest

For tax years beginning in 2025 through 2028, a noncorporate taxpayer may claim a deduction of up to $10,000 for qualified personal vehicle loan interest (QPVLI) paid or accrued during the tax year on a specified passenger vehicle loan (SPVL) incurred by the taxpayer for the purchase of an applicable personal vehicle (APV) for personal use. Generally, interest includes an amount paid, received, or accrued as compensation for the use or forbearance of money under the debt instrument.

The final regulations clarify that QPVLI also includes prepaid interest in the form of points and deferred or capitalized interest. In addition, it may include origination-related or financing-related charges, prepayment penalties, late-payment charges, default-related charges, and similar fees, if characterized as an interest expense for federal income tax purposes.

Secured by First Lien

Interest is QPVLI only if it is paid or accrued on debt for the purchase of an APV for personal use that is secured by a first lien. The final regulations clarify that an SPVL is secured by a first lien with the first voluntary security interest recorded against the vehicle. Any involuntary liens are disregarded even if given temporary higher priority at a later date.

A vehicle also may be considered secured by a first lien even if the lien has not yet been perfected or recorded due to short-term delays arising under State or local law. It may also be considered secured by a first lien where the lien is removed in connection with the taxpayer no longer owning the vehicle, but the taxpayer continues to be liable for the loan (repossession or insurance payout).

Purchase of Applicable Passenger Vehicle

An SPVL is qualified only to the extent the debt is incurred for the purchase of a new vehicle and any other items or amounts customarily financed in the same purchase transaction (for example, vehicle service plans, extended warranties, sales taxes, and vehicle-related fees). Any portion of a loan for items or amounts not customarily financed in the purchase are not qualified.

The taxpayer must allocate the debt on a pro rata basis. Whether items are customarily financed and directly related to the purchase of the vehicle is determined on an industry-wide basis and not on the particular financing terms. The final rules, however, expand the list of examples of items customarily financed in an APV purchase. The final regulations also maintain that debt incurred for negative equity in a prior purchased vehicle is not incurred for the purchase of an APV.

The requirement that an APV must be a new vehicle under the loan documentation refers to the lender’s classification of the vehicle for purposes of its financing programs. The original use of the vehicle must commence with the taxpayer. However, original use does not commence with a dealer if the vehicle is held primarily for sale to customers in the ordinary course of its trade or business. Original does not commence with a lessee if the lessee purchases the vehicle during or at the end of the lease term.

Information Reporting

Any lender or other person who, in the course of that trade or business, receives from any individual interest aggregating $600 or more for any calendar year on an SPVL, must report the receipt of interest on Form 1098-VLI to the IRS and the payee. The final regulations affirm that lenders are required to include only interest received on an SPVL for the purchase of an APV, the first use of which begins with the payee. This is required by statute and may require the lender to collect information it currently does not collect. The lender must file Form 1098-VLI for each SPVL.

T.D. 10054

The Treasury Department and IRS have issued proposed regulations providing that a private school is not eligible for Federal income tax exemption under section 501(c)(3) if it considers race, color, or national or ethnic origin in any of its educational, admissions, scholarship, athletic, or other school-administered policies. Any such consideration, under the proposed regulation subsection, would be considered de facto racial discrimination. The proposed rules would apply to taxable years beginning after May 31, 2027.

The Treasury Department and IRS have issued proposed regulations providing that a private school is not eligible for Federal income tax exemption under section 501(c)(3) if it considers race, color, or national or ethnic origin in any of its educational, admissions, scholarship, athletic, or other school-administered policies. Any such consideration, under the proposed regulation subsection, would be considered de facto racial discrimination. The proposed rules would apply to taxable years beginning after May 31, 2027.

Racial Nondiscrimination

The proposed regulations would treat all race-based consideration in private education as contrary to a fundamental public policy, regardless of its purpose, including remedial or diversity-related objectives. This restriction does not inclulde policies or actions designed to eliminate prejudice or other forms of discrimination. The rules would cover private primary and secondary schools, colleges, professional or trade schools, and universities. The rules specifically do not include governmental units, any agency or instrumentality of a governmental unit, or any organization owned or operated by such an agency or instrumentality.

Application to Private Schools

To qualify for tax exemption, a private school could not consider race, color, or national or ethnic origin in:

• (1) Educational or admissions policies
• (2) Scholarship or loan programs
• (3) Athletic or other school-supported programs

The proposal would not prevent religious schools from maintaining religious missions or selecting students based solely on religious affiliation. If finalized, Rev. Proc. 75-50 would also be modified to remove provisions permitting certain race-based preferences for minority groups.

The proposed regulations would add §1.501(c)(3)-2 and apply to taxable years beginning after May 31, 2027.

Proposed Regulations, NPRM REG-119986-25

IR 2026-103

A Notice of Final Partnership Adjustment (FPA) issued by the IRS to a partnership was timely under Code Sec. 6235 because the partnership and IRS had agreed to extend the limitations period for making partnership adjustments. It was determined that the extended period under Code Sec. 6235(a)(1) controlled because the statute permits adjustments until the latest of the periods specified in Code Sec. 6235(a). Accordingly, the partnership’s motion for summary judgment was denied.

A Notice of Final Partnership Adjustment (FPA) issued by the IRS to a partnership was timely under Code Sec. 6235 because the partnership and IRS had agreed to extend the limitations period for making partnership adjustments. It was determined that the extended period under Code Sec. 6235(a)(1) controlled because the statute permits adjustments until the latest of the periods specified in Code Sec. 6235(a). Accordingly, the partnership’s motion for summary judgment was denied.

The partnership, which was subject to the centralized partnership audit (CPA) regime, challenged an FPA disallowing a charitable contribution deduction. The partnership argued that the FPA was issued outside the applicable limitations period because the 330-day period following the notice of proposed partnership adjustment had expired. However, the parties had previously executed an agreement extending the limitations period for partnership adjustments under Code Sec. 6235(b).

Further, it was concluded that the periods specified in Code Sec. 6235(a) were not sequential deadlines. The statutory phrase “later of” required use of the latest applicable period, and an agreed extension under Code Sec. 6235(b) extended the limitations period for making adjustments, including issuance of the FPA. Because the FPA was mailed before expiration of the agreed extended period, the FPA was timely.

Katanga Properties, LLC, 167 TC No. 10, Dec. 62,899

The Doug LaMalfa Federal Disaster Tax Relief Certainty Act has been signed into law by President Trump.

The Doug LaMalfa Federal Disaster Tax Relief Certainty Act has been signed into law by President Trump.

The law (H.R. 5366) allows victims of federally declared disasters to deduct qualified losses above $500 per disaster without itemizing and removes the 10 percent adjusted gross income threshold for those losses. A fact sheet on the bill can be found here.

Under the law, this treatment of personal casualty loss is available until Jan. 1, 2027.

It also excludes wildfire relief payments from taxable income regardless of when they are received, so long as the wildfire disaster declaration occurs after Dec. 31, 2014, and before Jan. 1, 2027.

President Trump signed the bill into law on Sept. 11, 2026.

The IRS has modified automatic accounting method change procedures for research or experimental expenditures and certain residential construction contracts. Rev. Proc. 2026-32 modifies sections 7 and 19 of Rev. Proc. 2025-23 to reflect changes made by the One, Big, Beautiful Bill Act (OBBBA).

The IRS has modified automatic accounting method change procedures for research or experimental expenditures and certain residential construction contracts. Rev. Proc. 2026-32 modifies sections 7 and 19 of Rev. Proc. 2025-23 to reflect changes made by the One, Big, Beautiful Bill Act (OBBBA).

For research expenditures, the procedure modifies accounting method changes under Code Secs. 174 and 174A. Code Sec. 174 continues to require capitalization and 15-year amortization for foreign research expenditures. Code Sec. 174A generally allows a current deduction for domestic research expenditures paid or incurred in tax years beginning after December 31, 2024.

The procedure also revises rules governing adjustments associated with accounting method changes. It coordinates certain Code Sec. 481 adjustments with the OBBBA transition method for recovering unamortized domestic research expenditures. It also extends through tax years beginning before 2028 waivers of certain eligibility restrictions for specified automatic changes.

Further, the IRS provides automatic accounting method changes for residential construction contracts affected by the OBBBA amendments to Code Sec. 460. Taxpayers may change from the percentage-of-completion method to an exempt contract method for qualifying contracts entered into in tax years beginning after July 4, 2025. Certain taxpayers may also change their treatment of costs under Code Sec. 263A.

The modified procedures generally apply to Form 3115, Application for Change in Accounting Method, filed after September 4, 2026. Special transition rules apply to certain previously filed Forms 3115.

Rev. Proc. 2026-32

The IRS has reminded taxpayers who are earning income from selling goods and/or providing services that they may receive Form 1099-K, Payment Card and Third-Party Network Transactions, for payment card transactions and third-party payment network transactions of more than $600 for the year.

The IRS has reminded taxpayers who are earning income from selling goods and/or providing services that they may receive Form 1099-K, Payment Card and Third-Party Network Transactions, for payment card transactions and third-party payment network transactions of more than $600 for the year. Before 2022, Form 1099-K was issued for third party payment network transactions only if the total number of transactions exceeded 200 for the year and the aggregate amount of these transactions exceeded $20,000. However, now, a single transaction exceeding $600 can trigger a 1099-K The Service emphasized that money received through third-party payment applications from friends and relatives as personal gifts or reimbursements for personal expenses is not taxable. Taxpayers can access Form 1099-K, its instructions and a set of answers to frequently asked questions on the IRS web site.

In addition, the Service reminded taxpayers that they must pay income tax either through withholding or estimated tax payments. Taxpayers should use estimated tax payments to pay other taxes such as self-employment tax and the alternative minimum tax. IRS Publication 17, Your Federal Income Tax (for Individuals), provides general rules to help taxpayers pay the income taxes they owe. Additional helpful information is available in Chapter 5, Business Income, of Publication 334, Tax Guide for Small Business; Publication 525, Taxable and Nontaxable Income, and on the IRS website at Understanding Your Form 1099-K.

Beginning with their 2021 tax years, partnerships with "items of international tax relevance" must file Schedule K-2, Partners’ Distributive Share Items—International, and Schedule K-3, Partner’s Share of Income, Deductions, Credits, etc.—International.

Beginning with their 2021 tax years, partnerships with "items of international tax relevance" must file Schedule K-2, Partners’ Distributive Share Items—International, and Schedule K-3, Partner’s Share of Income, Deductions, Credits, etc.—International.

Draft partnership instructions for the 2022 Schedules K-2 and K-3 (Form 1065) and partner’s instructions for the 2022 Schedule K-3 were released October 25. The instructions add a “domestic filing exception” for a partnership that meets all four of the following requirements for its 2022 tax year:

• The partnership has:
  • no foreign activity, defined as foreign income taxes paid or accrued, foreign source income or loss, or an ownership interest in a foreign partnership, corporation, foreign branch, or foreign disregarded entity, or
  • foreign activity that is limited to passive category foreign income generating no more than $300 of taxes subject to the foreign tax credit (and shown on a payee statement);
• All of the partners are U.S. citizens or resident aliens, domestic decedent’s estates with only U.S.-citizen or resident-alien beneficiaries, domestic grantor trusts with only U.S.-citizen or resident-alien grantors and beneficiaries, or domestic non-grantor trusts with only U.S.-citizen resident-alien beneficiaries;
• The partners receive a notification from the partnership electronically or by mail, dated no later than two months before the due date of the partnership’s return, that the partners will not receive Schedules K-3 unless they request them; and
• The partnership does not receive a request from any partner for Schedule K-3 at least one month before the due date of the return (that is, a calendar-year partnership does not receive any requests by February 15, 2023).

A partnership that receives a timely request from a partner for a Schedule K-3 does not qualify for the domestic filing exception and must file Schedules K-2 and K-3 with the IRS and provide Schedule K-3 to the requesting partner. However, the partnership only needs to complete the parts of Schedules K-2 and K-3 that are relevant to that partner.

If a partnership receives a request from a partner for a Schedule K-3 after the one-month date but no requests by that due date, the partnership only needs to provide Schedule K-3 to the requesting partner by the date on which the partnership files its return or one month after it receives the request, whichever is later.

The draft instructions note that if a partnership fails the domestic filing exception test, it may still qualify for an exception to the filing requirement if all of its partners are eligible for the exemption from filing Form 1116.

A regularly updated IRS FAQ sheet on Schedules K-2 and K-3 states that "comments on the draft instructions can be provided to lbi.passthrough.international.form.changes@irs.gov on or before November 8, 2022."

The draft instructions also add guidance on when a domestic partnership with only domestic activity needs to file Schedules K-2 and K-3, on reporting capital gains and losses and foreign tax redeterminations, and on reporting income inclusions required by 2022 regulations that apply aggregate treatment to domestic partnerships in some situations.

Draft instructions for S corporations’ 2022 Schedules K-2 and K-3 have not been issued yet.

The IRS has released the annual inflation adjustments for 2023 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

The IRS has released the annual inflation adjustments for 2023 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

2023 Income Tax Brackets

For 2023, the highest income tax bracket of 37 percent applies when taxable income hits:

• $693,750 for married individuals filing jointly and surviving spouses,
• $578,125 for single individuals,
• $578,100 for heads of households,
• $346,875 for married individuals filing separately, and
• $14,450 for estates and trusts.

2023 Standard Deduction

The standard deduction for 2023 is:

• $27,700 for married individuals filing jointly and surviving spouses,
• $20,800 for heads of households, and
• $13,850 for single individuals and married individuals filing separately.

The standard deduction for a dependent is limited to the greater of:

• $1,250 or
• the sum of $400, plus the dependent’s earned income.

Individuals who are blind or at least 65 years old get an additional standard deduction of:

• $1,500 for married taxpayers and surviving spouses, or
• $1,850 for other taxpayers.

Alternative Minimum Tax (AMT) Exemption for 2023

The AMT exemption for 2023 is:

• $126,500 for married individuals filing jointly and surviving spouses,
• $81,300 for single individuals and heads of households,
• $63,250 for married individuals filing separately, and
• $28,400 for estates and trusts.

The exemption amounts phase out in 2023 when AMT exceeds:

• $1,156,300 for married individuals filing jointly and surviving spouses,
• $578,150 for single individuals, heads of households, and married individuals filing separately, and
• $94,600 for estates and trusts.

Expensing Code Sec. 179 Property in 2023

For tax years beginning in 2023, taxpayers can expense up to $1,160,000 in Code Sec. 179 property. However, this dollar limit is reduced when the cost of Code Sec. 179 property placed in service during the year exceeds $2,890,000.

Estate and Gift Tax Adjustments for 2023

The following inflation adjustments apply to federal estate and gift taxes in 2023:

• the gift tax exclusion is $17,000 per donee, or $175,000 for gifts to spouses who are not U.S. citizens;
• the federal estate tax exclusion is $12,920,000; and
• the maximum reduction for real property under the special valuation method is $1,310,000.

2023 Inflation Adjustments for Other Tax Items

The maximum foreign earned income exclusion amount in 2023 is $120,000.

The IRS also provided inflation-adjusted amounts for the:

• adoption credit,
• earned income credit,
• excludable interest on U.S. savings bonds used for education,
• various penalties, and
• many other provisions.

Effective Date of 2023 Adjustments

These inflation adjustments generally apply to tax years beginning in 2023, so they affect most returns that will be filed in 2024. However, some specified figures apply to transactions or events in calendar year 2023.

The 2023 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2022 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. 

The 2023 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2022 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.

The 2023 cost-of-living adjustments (COLAs) were released for:

• pension plan dollar limitations, and
• other retirement-related provisions.

Highlights of Changes for 2023

The contribution limit has increased from $20,500 to $22,500 for employees who take part in:

• 401(k),
• 403(b),
• most 457 plans, and
• the federal government’s Thrift Savings Plan

The annual limit on contributions to an IRA increased from $6,000 to $6,500.

The catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

The income ranges increased for determining eligibility to make deductible contributions to:

• IRAs,
• ROTH IRAs, and
• to claim the Saver's Credit.

Phase-Out Ranges

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction phases out if the taxpayer or their spouse takes part in a retirement plan at work. The phase out depends on the taxpayer's filing status and income.

• For single taxpayers covered by a workplace retirement plan, the phase-out range is $73,000 to $83,000, up from between $68,000 and $78,000.
• For joint filers, when the spouse making the contribution takes part in a workplace retirement plan, the phase-out range is $116,000 to $136,000, up from between $109,000 and $129,000.
• For an IRA contributor, who is not covered by a workplace retirement plan but their spouse is, the phase out is between $218,000 and $228,000, up from between $204,000 and $214,000.
• For a married individual covered by a workplace plan filing a separate return, the phase-out range remains between $0 and $10,000.

The phase-out ranges for Roth IRA contributions are:

• $138,000 and $153,000, for singles and heads of household,
• $218,000 and $228,000, for joint filers, and
• $0 to $10,000 for married separate filers.

The income limit for the Saver' Credit is:

• $73,000 for joint filers,
• $54,750 for heads of household, and
• $36,500 for singles and married separate filers.

Lastly, the amount individuals can contribute to their SIMPLE retirement accounts is increased to $15,500, up from $14,000.