Floor Plan Interest And Bonus Depreciation

While the floorplan interest will remain fully deductible taxpayers with over 25 million of average gross receipts and floorplan interest will be prohibited from taking bonus depreciation on any assets.

Floor plan interest and bonus depreciation.

This bonus depreciation exclusion affects property placed into service in any tax year after december 31 2017. 27 2017 and placed into service after dec. The same consistency applies towards property used in a trade or business that has had floor plan financing indebtedness and its related interest is taken into account for such tax year under section 163 j 1. Based on a literal reading of the tax law some dealerships had been concerned that having even 1 of floor plan financing interest would prevent them from ever claiming bonus depreciation again.

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. Most auto dealers that have pledged their vehicle inventory as collateral will have debts that meet the initial definition of floor plan financing. Based on a literal reading of the tax law some dealerships had been concerned that having even 1 of floor plan financing interest would prevent them from ever claiming bonus depreciation again. The dealership may qualify to take bonus depreciation one year and not qualify to take bonus the next.

If the business interest for that year is less than the section 163 j interest expense limitation then bonus depreciation would be permitted. The tax cuts and jobs act of 2017 tcja increases the bonus depreciation rate from 40 to 100 for property acquired after sept. If the floor plan carve out was not needed to deduct all the interest expense including floor plan interest bonus depreciation can be taken. Auto dealers with floor plan financing interest are still eligible for bonus depreciation.

The determination is made annually. Generally taxpayers in those industries cannot take bonus depreciation on their assets as a result of special rules in sec. 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. Taxpayers with floor plan financing interest will only be prohibited from claiming bonus depreciation if the special rule under section 163 j permitting floor plan financing to be deducted is used.

The tcja also disallows bonus depreciation if the floor plan financing interest exception applies. For those eligible under this rule an unlimited amount of floor plan financing interest is deductible.