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Bonus Depreciation Back on the Table for Automobile Dealerships?

Since the publication of the Tax Cuts and Jobs Act of 2017, many auto dealers and their accountants have been lamenting over the perceived loss of bonus depreciation in exchange for full deductibility of floor plan financing interest. The law was worded in such a way that left some room for interpretation, but most practitioners were of the opinion that if you had floor plan interest, you couldn’t take bonus depreciation.

NADA has been lobbying for clarification on the issue, lobbying for an “election” that would allow a taxpayer to treat floor plan interest as regular business interest (subject to the limitations established by 163(j)) and then qualify for bonus depreciation.

The Joint Committee on Taxation has given us all a glimmer of hope because in their “blue book” published in late December of 2018, they provide examples that allow for exactly what NADA, and many of us, were hoping for.

So is bonus depreciation back?  Not yet.

The Joint Committee report is not law, so to be sure, we need to see something in the final regulations. The final 168(k) regulations (bonus depreciation) are expected any day and perhaps that will provide some clarification. If not, we will need to wait for the final 163(j) regulations (Interest Deduction Limitations), and since the comment period on those proposed regulations doesn’t end until late February, Treasury will be hard pressed to issue final regulations before tax returns are due.

So what should you do?  Consult with your Withum tax advisor.


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