Tax Issues of Auto Dealerships: Floor Plan Financing, 163(j) Limitations, Clean Vehicle and Other Tax Credits

Automobile dealerships have unique tax issues. Most receive floor plan financing rates, allowing dealers to buy inventory now and pay for the vehicle when it is sold. The vehicles secure the loan. This short-term financing ensures the showroom is amply stocked with a wide selection of vehicles. Currently, Section 163(j) regulations limit the deductibility of interest for certain taxpayers. Although this limit does not apply to floor plan interest, if interest expense exceeds 30 percent of adjusted taxable income and the dealership is not otherwise exempt, the dealership cannot take bonus depreciation on any assets.

On Mar. 13, 2024, the IRS announced that sellers must register to receive Clean Vehicle Tax Credit payments. Purchasers can now receive a rebate when a vehicle is purchased rather than waiting months to receive a credit on their tax returns. Unfortunately, not all dealerships were aware of or signed up for the new system. The new online system must be used for advance credits as well as credits purchasers intend to claim on a tax return. Many purchasers planning to claim the tax return credit have had their claims denied because the dealership did not register under the new guidelines. Tax practitioners working with automobile dealerships must grasp the tax challenges these businesses endure.

Listen as our panel of auto dealership experts reviews these businesses' problematic tax situations.

• I. Tax issues of auto dealerships: introduction
• II. Depreciation
• III. Inventory
• IV. Floor plan financing
• V. Credits
• A. Electric vehicle credits
• B. Other credits
• VI. Excise tax
• VII. Impact of tariffs
• VIII. Other issues

The panel will cover these and other critical issues:

• Managing floor plan financing
• Depreciation options for automobile dealerships
• Registering to receive Clean Vehicle Tax Credits
• Other tax credits available to auto dealerships
• The 163(j) interest expense limitations relative to automobile sellers

Learning Objectives

After completing this course, you will be able to:

• Identify specific tax issues unique to sellers of vehicles
• Determine depreciation methods available for vehicles used in the business
• Decide how Section 163(j) impacts interest paid by dealerships
• Ascertain what tax credits are available to auto dealerships to minimize tax liability

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).