One major area of uncertainty that has puzzled auto dealer owners (and their tax advisors) since the Tax Cuts and Jobs Act of 2017 was signed into law, is the interplay between the floor plan interest exception provided for in the business interest deduction limitations and the (in)ability to fully expense assets under the Bonus depreciation rules.
The law as written seemed to indicate that if an auto dealer had even one dollar of floor plan interest, they would not be eligible for Bonus depreciation. Proposed regulations issued back in August and November of 2018 provided no clarity.
A glimmer of hope was provided by the Joint Committee on Taxations “Blue Book” (“JCT Blue Book”), which provided examples that showed an auto dealership with floor plan interest would indeed be able to take Bonus depreciation, as long as it did not take advantage of the “floor plan interest exception”. Unfortunately, the JCT Blue Book is merely an indicator of congressional intent and has some precedential authority, but it is not law nor considered primary authoritative guidance.
There are three significant wins for the auto dealer industry in the Proposed and Final Regulations issued September 13th:
- Auto dealers with floor plan financing interest are still eligible for Bonus depreciation. 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 the Bonus depreciation rules.
- The determination of eligibility for Bonus depreciation is made annually. An auto dealer could rely on the floor plan interest exception in one year, and then in the following year, take Bonus depreciation on assets placed in service that year if it did not need to take advantage of the floor plan interest exception to fully deduct business interest (including floor plan interest).
- A related realty company is eligible to take advantage of Bonus depreciation, even if the dealership that it rents to needs to rely on the “floor plan interest exception”.
There’s a lot more to the Proposed and Final Regulations, and the ultimate determination of a dealership’s ability to take advantage of the Bonus depreciation rules must be evaluated on a case by case basis. Consult with your Withum tax advisor by filling out the form below to make sure you are properly evaluating your situation and taking the most tax-efficient approach.
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