On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act (OBBBA) into law after the House approved the Senate-revised bill with a vote of 218-214. The bill includes a variety of tax items that will impact auto dealer business taxes, personal income taxes and estate and gift taxation. This article will highlight the pertinent areas of the OBBBA that will impact auto dealership businesses and owners.
Business Tax Provisions
Section 168(k) “Bonus” Depreciation
The bill permanently extends 100% bonus depreciation for qualified property acquired after January 19, 2025. For the first taxable year, dealerships can elect to apply the 40% bonus depreciation (for taxable year ending on December 31, 2025) or 100% bonus depreciation. Depreciation laws vary by state. Many states, such as Massachusetts, Rhode Island, New Jersey, New York, California and New Hampshire, do not conform to Section 168(k) bonus depreciation.
Section 179 Deduction
The OBBBA also increases the maximum allowable Section 179 deduction to $2.5 million in the 2025 taxable year. The deduction will be reduced by the amount by which the cost of the qualifying property exceeds $4 million. As dealerships expand their operations, open new stores and renovate existing stores, the increased 179 deduction allows dealers to immediately expense 100% of the cost basis of the asset placed in service. As Section 179 deductions are generally allowed by most states, electing 179, as opposed to taking bonus depreciation, may allow for less state income taxes to be paid.
Updates to Section 163(j) and Adjusted Taxable Income (ATI)
For tax years beginning after December 31, 2024, the calculation of ATI will return to EBITDA, allowing the addition of depreciation and amortization expense. This is a highly anticipated provision in the bill for auto dealers. The addition of depreciation and amortization will allow some dealers the ability to take advantage of bonus depreciation, as their floor plan financing will no longer exceed the limitation.
The OBBBA also modifies the definition of “motor vehicle” to include towable trailers and campers. This allows the floor plan interest for these trailers and campers to be deductible. Before enactment, interest on trailers and campers was not included as floor plan financing interest.
Dealerships should still evaluate the Section 163(j) interest limitations to determine if bonus depreciation is allowed for the year.
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Termination of Various Clean Energy Credits
While prior proposals terminated various energy credits immediately, the final bill gives some extension to the allowable energy credits introduced under the Inflation Reduction Act. Dealers that sell a high quantity of electric vehicles and have been participating in the IRS credit transfer program will be significantly impacted by the termination of these credits.
Dealers should contact their customers to notify them of the changes to the clean vehicle credits and encourage them to complete their EV purchase before the credits expire.
The following clean vehicle credits terminate for vehicles acquired after September 30, 2025.
- Section 25(e) Previously owned clean vehicle credit.
- Section 30(d) New Clean vehicle credit.
- Section 45(w) Qualified Commercial clean vehicle credit – the credit for vehicles owned and placed in service by the dealership terminates for vehicles acquired after September 30.
The requirement that the vehicles only be acquired, not placed in service, by September 30, 2025, provides some potential planning opportunities. By utilizing the word acquire, dealerships would only have to legally purchase and obtain vehicle ownership by that date.
The Section 30(c) alternative fuel vehicle refueling property credit (charging stations) terminates for property placed in service after June 30, 2026. The credited property must still be installed in qualifying areas to be allowed. Placed in service generally means installed and ready for use, instead of merely showing ownership of the property.
Some dealerships may utilize certain energy-efficient properties with store renovations or new construction. The credits associated with this energy-efficient property have changed:
- Section 179D Energy-Efficient Building Deduction terminates for property in which the construction begins after June 30, 2026.
- Section 45Y Clean Electricity Production Credit and Section 48E Clean Electricity Investment Credit terminate for wind and solar facilities placed in service after December 31, 2027.
Dealers installing solar or other energy-efficient properties should work with their contractors to ensure the property will be installed and placed in service before December 31, 2027.
Pass-Through Entity Tax
Even though prior proposals recommended limitations in pass-through entity tax deductions, the final bill does not limit the use of state-level pass-through entity tax as a SALT cap workaround.
Dealerships can still participate in these state tax workarounds as they have been previously.
Reporting Requirements for 1099s and W-2s
The bill increased the 1099 information reporting threshold for certain payments to persons engaged in a trade or business and payments of remuneration for services to $2,000 per calendar year (up from $600). The threshold will be indexed for inflation in calendar years after 2026.
To align with the provision for no tax on overtime, dealer employers will be required to separately state the qualified overtime compensation paid to employees on their annual Form W-2.
Individual Tax Provisions
The bill makes a variety of provisions from the TCJA (Tax Cuts and Jobs Act) permanent:
- Provided that the reduced individual income tax rates currently are made permanent.
- Standard deduction – effective January 1, 2025, the standard deduction for single/MFS is $15,750, Head of Household is $23,625, and MFJ is $31,500.
- Section 199A Qualified business income deduction – permanently 20%
- Mortgage interest limitation is limited to the first $750,000 of qualified home acquisition debt. Home Equity Line of Credit interest remains non-deductible.
SALT Deduction
The bill temporarily increased the maximum state and local tax deduction for tax years 2025 through 2029 to $40,000 (indexed for inflation for 2026 through 2029). The deduction will phase out as the taxpayers’ Modified Adjusted Gross Income (MAGI) is over $500,000, only allowing the minimum deduction amount of $10,000. After 2029, the SALT limitation decreases again to $10,000.
No Tax on Overtime
The bill provides a temporary deduction of $12,500 ($25,000 MFJ) for qualified overtime compensation received. The deduction will start to phase out when Modified AGI exceeds $150,000 ($300,000 MFJ) and will be eliminated entirely when Modified AGI exceeds $275,000 (single) or $550,000 (MFJ). The overtime pay must be separately stated on the individual’s W-2 form and still would be subject to FICA withholding, including social security and Medicare.
Car Loan Interest Deduction
For years 2025 through 2028, the bill allows a deduction of up to $10,000 per year for interest paid on a qualifying car loan, provided the final assembly is in the United States. This deduction applies whether the individual itemizes or takes the standard deduction. Dealerships may see an increase in car sales resulting from this allowable deduction.
There are several conditions necessary to qualify:
- The vehicle must be brand new (original use starts with the taxpayer).
- The loan must be a first-lien car loan (leases are not eligible) incurred after 12/31/2024.
- The vehicle must be for personal use.
- The vehicle must have its final assembly in the United States.
The deduction will start to be phased out for taxpayers with Modified AGI of $100,000 ($200,000 MFJ) and will not be available for taxpayers with MAGI that exceeds $150,000 ($250,000 for MFJ).
Alternative Minimum Tax (AMT) Exemption
The bill makes the higher exemption amounts under the TJCA permanent. For tax year 2025, the exemption amounts are $88,100 for single filers and $137,000 for joint filers. The income thresholds for phaseout of the exemption revert to pre-TJCA levels of $500,000 ($1 million MFJ). The income thresholds will be indexed for inflation after 2026. The phaseout is increased to 50% of the amount by which a taxpayer’s AMT income exceeds the applicable exemption phaseout threshold.
| MFJ | Previous Law | Adjusted Law |
|---|---|---|
| AMTI | $1,200,000 | $1,200,000 |
| Phase Out Amt | (1,000,000) | (1,000,000) |
| Excess | $200.000 | $200,000 |
| Reduction | $50,000 (200k x 25%) | $100,000 (200k x 50%) |
| Exemption Amount | $87,000 (137,000-50,000) | $37,000 (137,000-100,000) |
Dealership owners and other high-income taxpayers may be subject to the Alternative Minimum Tax and should consult with tax advisors to plan for this.
Charitable Deductions
The final bill includes provisions related to cash donations to qualified charitable organizations.
- For taxpayers who do not itemize, the bill provides a permanent deduction beginning in 2026 of $1,000 for single filers or $2,000 MFJ. Donations to donor-advised funds are not eligible for this deduction.
- For taxpayers who itemize, the bill limits the cash charitable deduction available to those cash contributions that exceed 0.5% of the taxpayer’s contribution base starting in the 2026 taxable year.
Estate and Gift Tax Provisions
The bill permanently increased the estate tax exemption and lifetime gift exemption amounts to $15 million for single filers and $30 million for joint filers in 2026. After 2026, the exemption will be indexed for inflation.
While this article has touched on many of the tax provisions included in the OBBBA, there are many other tax provisions that may affect dealership businesses and owners. The bill is seen as a welcome relief for auto dealers, with many of the sunsetting TCJA items permanently extended.
Author: Kristin Reese-Scalabrino | [email protected]
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For more information on how the One Big Beautiful Bill Act affects your business or personal income taxes, please contact a member of Withum’s Dealership Services Team.
