Floor Plan Financing Bonus Depreciation

This planning opportunity paired.

Floor plan financing bonus depreciation.

The tax cuts and jobs act of 2017 tcja increases the bonus depreciation rate from 40 to 100 for property acquired after sept. The proposed regulations provide for a special rule applicable to taxpayer with floor plan interest determining when it is taken into account for purposes of the 163 j business interest limitations. Floor plan financing and bonus depreciation exception. The tcja also made changes to the bonus depreciation rules including increasing the percentage from 50 to 100 and excluding certain properties from bonus depreciation eligibility.

Fortunately the recent proposed regulations clarified three key elements of the interaction between the interest expense and bonus depreciation rules. Specifically the 2019 proposed regulations address the following. Generally taxpayers in those industries cannot take bonus depreciation on their assets as a result of special rules in sec. If such interest was initially considered floor plan financing interest then most auto dealers would be prohibited from taking the accelerated deductions for 100 bonus depreciation.

Tax strategies bonus depreciation rules favor dealerships with floor plan financing interest. This leads to an unexpected trade off. Through some tax planning the automobile dealership decides the new construction location will be owned by a new real estate holding company. Floor plan interest remains fully deductible but interest expense on debt other than floor plan financing debt may be limited due to 1 and 2.

Auto dealers with floor plan financing interest are still eligible for bonus depreciation. 10 30 2019 under the tax reform rules passed in 2017 the deduction for net business interest expense was generally limited to 30 of a dealership s adjusted taxable income plus 100 of floor plan financing interest expense. Dealerships that take the floor plan financing interest exclusion in computing their limit can t claim 100 bonus depreciation for their fixed asset additions. The automobile dealership operating company benefits from floor plan financing so bonus depreciation will not apply to assets placed into service by the company in 2019.

Floor plan financing interest expense remained fully deductible under tax reform. Taxpayers that have assets used in regulated utilities or that have had floor plan financing interest also received specific guidance in the 2019 proposed regulations. 27 2017 and placed into service after dec. Any business that deducts floor plan financing interest cannot claim bonus depreciation on any property acquired by that trade or business.

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.