The following highlights certain auto retail industry provisions:
Floor plan interest remained 100 percent deductible in conjunction with not being able to claim the new temporary immediate expensing provisions of Section 168(k) (“Bonus depreciation); however, Section 179 expensing, with permanent increased limits to $1,000,000 (inflation adjusted), remains available.
A 20 percent deduction on pass-through income (including from trusts and estates), which results in a maximum effective tax rate of 29.6 percent for business income. The 20 percent deduction for pass-through income is limited to 50 percent of the W-2 wages paid by the business (generally will apply to the operating dealership) or the sum of 25 percent of the W-2 wages plus 2.5 percent of depreciable capital (generally will apply to entities engaged in a real estate trade or business).
For tax years through 2025, excess business losses will no longer be deductible in the current tax year. Instead, those losses must be carried forward and treated as part of the taxpayer’s net operating loss in the subsequent tax year. An excess business loss is the excess of the taxpayer’s total trade or business deductions and losses over the sum of (a) their total income and gains attributable to those trades or businesses and (b) $250,000 (single) and $500,000 (joint). With operating losses generated after 2017 only offsetting 80% of taxable income.
Section 1031 exchanges will only be permitted for transactions involving real property, significantly diminishing the ability to defer gains on disposals of collectibles, vehicles and franchise rights.
The much heralded flat rate of 21% exists. The corporate alternative minimum tax is repealed.
To “pay” for the projected decrease in tax revenues associated with the reduction in the C-Corporation tax rate, individual itemized deductions were essentially eliminated with the intent that more than 94% of individuals will claim the standard deduction. The specific changes to itemized deductions are:
It is worthy to note despite numerous threats to repeal LIFO, the widely used accounting method was not changed in the bill.
For more information on the tax reform impact on the auto retail industry, fill out the form below and a member of our Automotive Services team will respond.
Author: Elliot J. DeSanto, CPA | firstname.lastname@example.org