Bonus Depreciation and Your Dealership

Take Advantage of Tax Benefits for Your Dealership's Projects

FY 2019 planning is about to shift into high gear and many of you are wrapping up some FY 2018 projects as you read this. Maybe you have a $3 million store in the works and you’re planning for it right now. Manufacturers may be asking you for certain upgrades to your current property. Or you might be needing to replace some large pieces of equipment for your service department.

No matter what you’re planning- are you taking full advantage of the tax benefits you could get out of those projects?

Bonus depreciation, small business exclusions and other strategies could save your dealership money in the long run.

Bonus depreciation was enacted during the second Bush administration, and the Obama administration continued it to stimulate the economy during the Great Recession by accelerating tax deductions for companies. With the enactment of the Tax Cuts and Jobs Act (TCJA), there are some significant changes to bonus depreciation that you need to know about if you’re planning new projects and purchases within your dealership and finishing others.

Because the TCJA carved out an exemption to leave floor plan financing interest expense to be fully deductible, Congress decided that bonus depreciation is no longer available for many dealerships.

Although we don’t expect changes in this anytime soon, there’s been plenty of talk between the IRS and the National Automobile Dealers Association about reinstating bonus depreciation for dealers, but there’s been no movement on it at this time.

 

What do you need to know at this point?

You cannot take a bonus depreciation if your business has more than $25 million in sales, and if you have floorplan financing interest.

If your business is at less than $25 million in sales, you can still have full deductibility of interest and bonus depreciation is still available for you.Let’s say you buy a sizable asset, like a new service lift. In the past, you’d be able to take the cost of that lift and write it off in the first year of the purchase under the IRS’ bonus depreciation option. Now, you must spread that write-off over the life of the asset. Section 179 expensing is still available with the limit increasing to one million dollars, but is still subject to limits that make losing bonus depreciation a tax issue to plan around.

 

What happens if you’re planning on buying something bigger than a lift?

Let’s say you’re building that new property. You can still get bonus depreciation, but you must structure things a bit differently now- and that’s where Brady Ware can help. We can break down these changes from the TCJA even further and find the best fit for your recently completed projects and the ones you’re planning for 2019. Make sure you talk to us about your best options.

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