Dealership Tax Accounting Reminders for 2024

Dealerships Taking Bonus Depreciation in 2024

For assets with short useful lives (less than 20 years), this accelerated tax depreciation method has been available for years. Bonus Depreciation allows dealers to fully expense their asset purchases in the year the assets were placed in service. However, as part of the 2017 Tax Cuts and Jobs Act, (“TCJA”) the Bonus Depreciation percentage was scheduled to be cut over time.

Effective 1/1/2023, the percentage was reduced from 100% to 80%; beginning 1/1/2024, the percentage was further reduced from 80% to 60%. So, if a $100,000 piece of equipment is placed into service during 2024, $60,000 could be claimed as Bonus Depreciation, with the remaining $40,000 of purchase price recovered over its useful life with regular tax method depreciation.

Ask yourself:

Am I maximizing available depreciation for my asset purchases?

Interest Expense Deduction Limitation

In light of rising interest rates, auto dealers need to be mindful of a crucial change impacting the deductibility of interest expenses under IRC §163(j). Commencing in 2022, the limitation is now tied to taxable income post-depreciation and amortization.

This shift, coupled with escalating interest costs, necessitates a strategic consideration of deduction restrictions at the forefront of tax planning. Dealers have an exception – the option to exclude floorplan interest from the calculation. However, this choice comes with a trade-off, rendering them ineligible for Bonus Depreciation on fixed asset additions.

A proactive approach, consulting with tax advisors, is recommended to navigate these changes effectively and align tax planning with financial objectives.

Ask yourself:

Have I considered the impact of interest expense in my tax planning?

Electric Vehicle (EV) Credits

Has your dealership registered with the IRS Energy Credits Online (ECO) System? Most dealerships have been struggling with the process, as there was little guidance and it was published last minute.

For customers to receive credits—or assign them to the dealership—the dealer must be registered with ECO, complete Form 15400 for eligible sales, and provide the completed form to the IRS and the customer.

The reporting mechanics continue to encounter hiccups and delays of deadlines, so keep an eye out for updates from the IRS and your dealer associations. Upon resolution of these issues, the IRS intends to have Form 15400 required to be submitted within three calendar days of the date sale.

Ask yourself:

Am I up-to-date on the latest IRS updates regarding EV credits?

Pass Through Entity Tax Election (PTET)

In response to the limitation on the deduction of state and local income taxes encompassed in the TCJA, many states have developed a workaround. For entities treated as pass-throughs for federal tax, a regime where the entity pays the state income tax on behalf of the shareholder or partner was created.

The tax payment creates an entity-level deduction for the tax expense, reducing the amount of net income taxed to the owner. The owner then claims a credit on their individual state tax return for the amount of the tax paid.

Ask yourself:

Is my dealership located in a state with a PTET regime?  Have I considered electing into this treatment for potential tax benefits?

Get Customized Tax Minimization Strategies

We don’t expect you to be an expert on all the small details. Your Brady Ware Dealership Advisors understand the ins-and-outs of the best tax minimization strategies to ensure you are seeing the most benefit. Have questions, or want to discuss these considerations in more detail? Reach out to a team member today!