Floor Plan Interest And Bonus Depreciation

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.

Floor plan interest and bonus depreciation.

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. 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 determination is made annually.

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. 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. 27 2017 and placed into service after dec. Generally taxpayers in those industries cannot take bonus depreciation on their assets as a result of special rules in sec.

The tcja also disallows bonus depreciation if the floor plan financing interest exception applies. This bonus depreciation exclusion affects property placed into service in any tax year after december 31 2017. 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 dealership may qualify to take bonus depreciation one year and not qualify to take bonus the next.

For those eligible under this rule an unlimited amount of floor plan financing interest is deductible. Auto dealers with floor plan financing interest are still eligible for 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. If the floor plan carve out was not needed to deduct all the interest expense including floor plan interest bonus depreciation can be taken.

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. If the business interest for that year is less than the section 163 j interest expense limitation then bonus depreciation would be permitted.