Floor Plan Financing Tax Reform

For this purpose floor plan financing interest means indebtedness used to finance motor vehicles held for sale or lease and secured by such inventory.

Floor plan financing tax reform.

The tax cuts and jobs act act made significant changes to the internal revenue code. Floor plan interest is deductible in full. This rule limits annual interest expense deductions to an amount equal to the sum of. In a response to requests made in bkd s comments on notice 2018 28 the proposed regulations clarify that the definition of motor vehicle for purposes of floor plan financing indebtedness is based on the equipment held for sale or lease not on the kind of business the purchaser or lessee is engaged in.

Rand paul r ky was the top priority for nada in the senate tax reform bill. For businesses with less than 25 million in average annual gross receipts interest will continue to be deductible in full. As a practical matter nearly all auto dealers incur such floor plan financing interest. Preserving floor plan deductibility was one nada s top priorities for tax reform.

The senate finance committee bill reported out of committee would have reduced the current 100 percent deduction of floor plan interest to 30 percent of adjusted taxable income and treated dealerships generally closely held small businesses the same as large corporations. For those with over 25 million in gross receipts which includes most dealerships non floor plan interest is limited to 30 percent of net income before interest and depreciation. The senate s version of the tcja proposed limiting the deduction for floor plan financing interest to the same 30 percent amount that other types of interest are subject but this change was not adopted in the final bill. Floor plan financing interest is interest paid or accrued with respect to debt used to finance the acquisition of motor vehicles held for sale or lease and that is secured by the inventory acquired.

1 business interest income 2 30 percent of adjusted taxable income and 3 floor plan financing interest. Auto dealers rejoice over preservation of 100 floor plan financing interest deduction by emily fiore and david blum on june 20 2018 posted in federal tax. In the original senate bill the interest deductibility was slashed to 30 percent of adjusted taxable income which would have been crippling to many dealers and created the risk of paying higher taxes even if a dealership does not show a profit. The tax reform created a new limitation which replaces the earnings stripping rules and applies to all businesses regardless of form on the deductibility of net business interest expense that exceeds 30 of a taxpayer s adjusted taxable income.

The section 179 expense is not limited for taxpayers with floor plan financing so may provide a valuable benefit for these taxpayers subject to limitations on bonus depreciation. The law allows real property and farming trades or businesses to make an irrevocable election out of the business interest deduction limitation.