Floor Plan Financing Bonus Depreciation

Tax strategies bonus depreciation rules favor dealerships with floor plan financing interest.

Floor plan financing bonus depreciation.

27 2017 and placed into service after dec. The proposed regulations provide for a special rule applicable to taxpayer with floor plan interest determining when it is taken into account for purposes of the 163 j business interest limitations. Dealerships that take the floor plan financing interest exclusion in computing their limit can t claim 100 bonus depreciation for their fixed asset additions. 10 30 2019 under the tax reform rules passed in 2017 the deduction for net business interest expense was generally limited to 30 of a dealership s adjusted taxable income plus 100 of floor plan financing interest expense.

The tax cuts and jobs act of 2017 tcja increases the bonus depreciation rate from 40 to 100 for property acquired after sept. The automobile dealership operating company benefits from floor plan financing so bonus depreciation will not apply to assets placed into service by the company in 2019. As long as the dealership does not need to use the floor plan interest exception to fully deduct business interest including floor plan interest then the dealership is still eligible to take advantage of the favorable full expensing provisions of. Floor plan financing interest expense remained fully deductible under tax reform.

If such interest was initially considered floor plan financing interest then most auto dealers would be prohibited from taking the accelerated deductions for 100 bonus depreciation. Through some tax planning the automobile dealership decides the new construction location will be owned by a new real estate holding company. This planning opportunity paired. But it came at a cost.

Fortunately the recent proposed regulations clarified three key elements of the interaction between the interest expense and bonus depreciation rules. Specifically the 2019 proposed regulations address the following. Floor plan financing and bonus depreciation exception. Generally taxpayers in those industries cannot take bonus depreciation on their assets as a result of special rules in sec.

Floor plan interest remains fully deductible but interest expense on debt other than floor plan financing debt may be limited due to 1 and 2. Taxpayers that have assets used in regulated utilities or that have had floor plan financing interest also received specific guidance in the 2019 proposed regulations. As a result virtually no auto dealers will be able to take advantage of the expanded bonus depreciation provisions of the tcja. Any business that deducts floor plan financing interest cannot claim bonus depreciation on any property acquired by that trade or business.

The tcja also made changes to the bonus depreciation rules including increasing the percentage from 50 to 100 and excluding certain properties from bonus depreciation eligibility.