Floor Plan Financing Interest And Bonus Depreciation

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.

Floor plan financing interest and bonus depreciation. The prohibition on bonus depreciation applies only to assets placed in service during a year when the dealership needs to take the floor plan financing interest exclusion into account to avoid the interest limitation. The prohibition on bonus depreciation applies only to assets placed in service during a year when the dealership needs to take the floor plan financing interest exclusion into account to avoid the interest limitation. The prohibition applies on an annual basis. Fortunately the recent proposed regulations clarified three key elements of the interaction between the interest expense and bonus depreciation rules.

The prohibition applies on an annual basis. For instance if a dealership benefitted from floor plan financing indebtedness in the 2018 tax year it would exclude them from bonus depreciation eligibility for property placed into service for the tax year but would not automatically exempt them from being eligible for bonus depreciation on property placed in service in subsequent years. Auto dealers with floor plan financing interest are still eligible for 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.

Taxpayers that have floor plan financing will also be allowed to test annually whether the floor plan financing is taken into account in determining whether bonus depreciation is allowed for that tax year. Interplay between the business interest limitation and bonus depreciation in the case of floor plan financing the business interest limitation generally restricts the deduction for business interest to 30 of the taxpayer s adjusted taxable income for the year but provides an exception for floor plan financing interest.