2025 Tax Season: What Dealers Should Know

1. Section 163(j) Limitation Changes: A New Math Problem for Interest Deductions

Let’s talk numbers. The calculation for the Section 163(j) interest deduction can be tricky:

Goodbye, EBITDA. Hello, EBIT

The interest deduction limit is now based on 30% of EBIT (Earnings Before Interest and Taxes), not EBITDA (which includes depreciation and amortization). That means fewer deductions for businesses with high depreciation costs—like auto dealerships.

The Bright Side: Floor Plan Interest Stays Fully Deductible

If you’re using floor plan financing to stock your inventory, this interest remains 100% deductible. To maximize your benefits, review your financing structure and consider reallocating debt to make the most of this exclusion.

2. Bonus Depreciation Phase-Down: Timing Is Everything

The window to take advantage of bonus depreciation is closing…fast. This coming tax season (for the 2024 tax year) the rate dropped to 60% for qualified property. This includes dealership upgrades, machinery, and fleet vehicles.

Pro Tip

If you’re planning big investments, act now. The depreciation is set to decrease over the next two years. Lock in purchases before year-end to capture the higher depreciation rate. Not ready? No worries, Section 179 expensing might still have your back.

3. Commercial Clean Vehicle Credit (Section 45W): Bigger Incentives for Going Green

Thinking about adding EVs to your fleet? The Section 45W credit is here to help.

• For Heavyweights: If your fleet includes vehicles over 14,000 lbs, you can snag a credit of up to $40,000 per vehicle.
• For Lighter Rides: Lighter EVs (under 14,000 lbs) still qualify for $7,500.
• Charging Up: Install EV charging stations to support your fleet, and you’ll get an additional tax credit for the infrastructure. It’s a win-win for your bottom line and sustainability goals.

4. Alternative Fuel Refueling Property Credit (Section 30C): Doubling Down on EV Infrastructure

With more customers and businesses moving toward EVs, dealerships investing in charging stations stand to benefit in a big way. Updates to Section 30C sweeten the deal:

• Higher Credit Caps: In low-income or rural areas, you can now claim 50% of installation costs, up to $200,000 per station (that’s double the previous limit).
• More Locations Qualify: New, more flexible criteria mean more dealerships can tap into this expanded credit.

5. Ohio’s Commercial Activity Tax (CAT): A Break for Smaller Dealerships

Good news for Ohio auto dealerships: CAT updates mean fewer businesses will be subject to the tax.

• The New Threshold: If your taxable gross receipts are $6 million or less, you’re off the hook. You can even cancel your CAT account effective December 31, 2024. For quarterly taxpayers, this could mean immediate savings.

6. Corporate Transparency Act (CTA): BOI Reporting on Hold (For Now)

Here’s a twist: the Corporate Transparency Act (CTA) BOI reporting requirements are on pause again, thanks to a nationwide injunction.

• What You Should Know: “Reporting Companies” are not required to file BOI reports at this time, though voluntary submissions are still being accepted by FinCEN. Stay tuned for updates—this one’s not over yet.

Wrapping It Up: Don’t Let the 2025 Tax Season Sneak Up on You

Taxes can feel like a lot — especially with all these changes — but a little planning goes a long way. From optimizing your financing under Section 163(j) to cashing in on EV credits and bonus depreciation, there are plenty of ways to stay ahead.

Need help? Our team of auto dealer accounting experts is ready to guide you through the complexities of car dealership accounting. Don’t wait until the last minute- contact us today to make the most of 2025.