xxxxxxxxxxx On Aug. 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, sweeping legislation addressing healthcare, climate change and renewable energy incentives, and inflation, among other priorities. A much slimmer version of the President’s Build Back Better proposals, the Act is the result of significant and lengthy negotiations within the Democratic caucus aimed primarily at gaining the support of Senators Manchin and Sinema.

In addition to its numerous tax provisions targeting renewable energy and renewable energy investment – explored in this overview by our Renewable Energy team (Opens a new window)

Individual auto loan interest deduction (Section 163)

The OBBB temporarily allows individuals to deduct Qualified Passenger Vehicle Loan Interest (QPVLI), even if they do not itemize. The deduction applies to interest on loans used to purchase certain new personal-use vehicles assembled in the United States.

Deduction limits and phaseouts

The maximum annual deduction for QPVLI is $10,000, which is reduced incrementally for taxpayers with modified annual gross income (MAGI) of $100,000, or $200,000 for joint filers.

Requirements for a qualifying vehicle

Interest is deductible only if paid on a loan for an applicable passenger vehicle (APV) meeting all the conditions below:

• The vehicle’s original use begins with the taxpayer;
• The vehicle is manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails);
• The vehicle has at least two wheels;
• The vehicle is a car, minivan, van, sport utility vehicle, pickup truck, or motorcycle;
• The vehicle is treated as a motor vehicle for purposes of title II of the Clean Air Act; and
• The vehicle has a gross vehicle weight rating of less than 14,000 pounds. 

Lease financing does not qualify, meaning amounts paid under a vehicle lease are not QPVLI. To claim the deduction, taxpayers must report the amount of interest paid and the vehicle’s VIN on a timely filed federal tax return.

New reporting requirements for lenders (Section 6050AA)

Lenders receiving $600 or more in car loan interest on a qualifying loan during the year must file a new information return under Section 6050AA. The proposed regulations do not specify the exact form to be used but provide insight regarding the information required to be included. See the proposed regulations(Opens a new window) for more details.

What does CohnReznick think?

Taxpayers and lenders should begin evaluating whether newly purchased vehicles meet APV qualification criteria. Lenders specifically should begin implementing any necessary changes so that they are in compliance with the new requirements to capture loan-level reporting details. Taxpayers should model out the impact of MAGI-based phaseouts to determine the extent to which they can avail themselves of the new provision to deduct the interest on their qualifying vehicles. And, both taxpayers and lenders alike should retain proper documentation needed for compliance with Section 163 and Section 6050AA.

Benefits we've seen companies experience by implementing finance and accounting automation tools include: 

1. Increased productivity. Using technology to automate repetitive and time-consuming tasks allows for faster completion of deliverables, unlocking time to work on more value-added tasks and drive higher productivity. As an example, the use of optical character recognition (OCR) built within an accounts payable workflow solution will increase productivity and transparency for the accounts payable process. 
2. Cost management. Integrating automation tools to complete tasks accurately and consistently, in alignment with your current processes, can lead to lower operational and personnel costs and therefore increased profitability. For example, using a close management tool integrated with a quality assurance tool can help standardize and reduce the amount of time to complete month-end tasks.
3. Improved quality. Standardized processes can minimize the risks of human error and improve the quality of outputs as the work is done in a repeatable way according to predefined standards. Leveraging system lookup and data validation through a point solution tool can help minimize manual data entry errors.
4. Time for strategic initiatives. Tasks requiring precision such as data entry and complex calculations can be automated, freeing up resources to focus on tasks requiring creative thought, problem-solving, and client service. When you increase automation through the transactional level by reducing keystrokes and various lookups you can have your staff spend more time on value-added tasks versus being heads-down on data entry.
5. Scalable processes. Automating standard processes enables you to scale your business for increased workloads without increasing staff. These tools can grow with you, giving you the ability to upgrade to other platforms or integrate additional applications with minimal disruption. It is important to look for a technology stack that is flexible and scalable to your business. A robust general ledger system will enable you to support your business as you grow and become more complex.
6. Financial insights. Budgeting and forecasting tools not only help you stay on track but also enable you to gain insights into near-future performance, in real time. This allows your organization to pivot, collaborate, and adjust resources that support a service or product showing unexpected success or decline. There are many budgeting and forecasting tools that are affordable and provide simple integrations with your general ledger.
7. Response time. Automated tools operate on a global scale and run 24/7, enabling continuous processes and services essential for tasks requiring constant monitoring or quick response times. When selecting a technology stack, leverage a cloud-based system that your teams can easily access securely from across the globe.
8. Risk mitigation. Automation can significantly decrease risks as it follows standard processes and security protocols that are created with your risk profile and governance needs in mind. You will want to ensure that the tools you use are properly vetted from a security and compliance perspective. 
9. Product development. By automating time-consuming processes, teams can redirect their focus to projects that require innovation and creativity, leading to the development of new products and services to grow your business. There is a renaissance of new products and tools being introduced to the finance function. Identify a team within your practice to evaluate and assess the latest technologies to determine which may be the right fit for your organization.
10. Technology investment. Cloud-based technology can save you money by virtualizing your hardware. It can decrease or eliminate the costs of servers, data centers, and networking resources by relocating them to the cloud.  

A key strength is knowing when and where to apply automation tools, and where to limit new technologies due to cost/benefit analysis and prioritization. Having an open and transparent conversation with your company’s technology and business unit leaders about your options and recommendations will help drive agreement on the right decision for your organization. 

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