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.

Floor plan interest and bonus depreciation.

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. Dealerships that take the floor plan financing interest exclusion in computing their limit can t claim 100 bonus depreciation for their fixed asset additions. 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. 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.

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

27 2017 and placed into service after dec. The bonus depreciation rules under irc 168 k include a coordination rule preventing taxpayers from claiming such accelerated depreciation if business interest was deducted under irc 163 j as floor plan financing interest. This bonus depreciation exclusion affects property placed into service in any tax year after december 31 2017. Auto dealers with floor plan financing interest are still eligible for bonus depreciation.

Most auto dealers that have pledged their vehicle inventory as collateral will have debts that meet the initial definition of floor plan financing. 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. The dealership may qualify to take bonus depreciation one year and not qualify to take bonus the next.

If the floor plan carve out was not needed to deduct all the interest expense including floor plan interest bonus depreciation can be taken. Dealerships that take the floor plan financing interest exclusion in computing their limit can t claim 100 bonus depreciation for their fixed asset additions.