Floor Plan Financing Tax Reform

Additionally certain types of real property that will not meet the definition of qualified improvement property for bonus depreciation purposes are eligible for deduction under section 179 under the qualified real property provisions.

Floor plan financing tax reform. The senate s version of the tcja proposed limiting the deduction for floor plan financing interest to the same 30 percent amount that other types of interest are subject but this change was not adopted in the final bill. For businesses with less than 25 million in average annual gross receipts interest will continue to be deductible in full. Preserving floor plan deductibility was one nada s top priorities for tax reform. As a practical matter nearly all auto dealers incur such floor plan financing interest.

The tax reform created a new limitation which replaces the earnings stripping rules and applies to all businesses regardless of form on the deductibility of net business interest expense that exceeds 30 of a taxpayer s adjusted taxable income. With this clarification the irs and treasury did not include bkd s recommended rule that debt incurred to purchase construction machinery or equipment for sale or lease to farmers. The law allows real property and farming trades or businesses to make an irrevocable election out of the business interest deduction limitation. Rand paul r ky was the top priority for nada in the senate tax reform bill.

The section 179 expense is not limited for taxpayers with floor plan financing so may provide a valuable benefit for these taxpayers subject to limitations on bonus depreciation. This rule limits annual interest expense deductions to an amount equal to the sum of. For this purpose floor plan financing interest means indebtedness used to finance motor vehicles held for sale or lease and secured by such inventory. Floor plan interest is deductible in full.

Auto dealers rejoice over preservation of 100 floor plan financing interest deduction by emily fiore and david blum on june 20 2018 posted in federal tax. This amendment offered by sen. The tax cuts and jobs act act made significant changes to the internal revenue code. In a response to requests made in bkd s comments on notice 2018 28 the proposed regulations clarify that the definition of motor vehicle for purposes of floor plan financing indebtedness is based on the equipment held for sale or lease not on the kind of business the purchaser or lessee is engaged in.

In the original senate bill the interest deductibility was slashed to 30 percent of adjusted taxable income which would have been crippling to many dealers and created the risk of paying higher taxes even if a dealership does not show a profit. For those with over 25 million in gross receipts which includes most dealerships non floor plan interest is limited to 30 percent of net income before interest and depreciation.