Floor Plan Interest And Bonus Depreciation

Proposed irs regulations address bonus depreciation.

Floor plan interest and bonus depreciation. Generally taxpayers in those industries cannot take bonus depreciation on their assets as a result of special rules in sec. 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. Fortunately the recent proposed regulations clarified three key elements of the interaction between the interest expense and bonus depreciation rules. The proposed regulations address the availability of 100 bonus depreciation for dealers who also deduct floor plan financing interest.

An auto dealer could rely on the floor plan interest exception in one year and then in the following year take bonus depreciation on assets placed in service that year if it did not need to take advantage of the floor plan interest exception to fully deduct business interest including floor plan interest. 10 30 2019 under the tax reform rules passed in 2017 the deduction for net business interest expense was generally limited to 30 of a dealership s adjusted taxable income plus 100 of floor plan financing interest expense. 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. 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.

Commentary was requested to clarify when the floor plan financing interest is taken into account the length of time the section applies and eligibility to claim bonus depreciation on leased property to a trade or business described in irc section 168 k 9. If such interest was initially considered floor plan financing interest then most auto dealers would be prohibited from taking the accelerated deductions for 100 bonus depreciation. A dealership is eligible for bonus depreciation as long as it would be able to deduct its business interest expense without the floor plan financing interest exclusion the irs recently released proposed regulations under section 168 k reg 106808 19 has addressed some dealer concerns. This 30 limitation does not apply to taxpayers with floorplan financing and such floorplan interest will remain fully deductible.

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. On september 13 the internal revenue service irs released both final and proposed regulations on the tax cuts and jobs act s bonus depreciation provisions. The tax cuts and jobs act of 2017 tcja increases the bonus depreciation rate from 40 to 100 for property acquired after sept.