The Impact of the OBBBA Tax Law on Dealerships

Bonus Depreciation and Floorplan Interest: A Fix Dealers Have Been Waiting For

Bonus depreciation has been a challenging area for dealerships with large amounts of floorplan interest, particularly since a 2022 rule change that limited eligibility.

Under the updated law:

• Dealers whose total interest expense (including floorplan interest) remains below the limit set by Section 163(j) are now eligible to claim bonus depreciation.
• Before 2022, the 30% interest limitation was based on a metric similar to EBITDA (earnings before interest, taxes, depreciation, and amortization).
• After 2022, the calculation changed to EBIT (excluding depreciation and amortization), significantly reducing adjusted taxable income and the amount of deductible interest.

While floorplan interest remained fully deductible, this shift in calculation meant that many dealers lost access to bonus depreciation and deductions for non-floorplan interest.

The OBBBA reverses this. It restores the EBITDA-based formula, allowing for higher adjusted taxable income and giving dealers greater room to deduct bonus depreciation and maximize tax savings.

Permanent 100% Bonus Depreciation

Another major win: The new law makes 100% bonus depreciation permanent for qualifying property placed in service after January 19, 2025, repealing the phasedown that was scheduled to begin in 2027.

This change provides greater certainty and planning flexibility for dealerships making large capital investments.

Qualified Business Income Deduction Becomes Permanent

S corporation and Partnership owners will also benefit from the bill’s enactment to permanently extend the 20% Qualified Business Income Deduction, a key provision from the TCJA that was originally set to expire in 2026.

A Modest Win for Consumers: New Car Interest Deduction

While the bill focuses primarily on business tax relief, it also introduces a new consumer deduction on auto loan interest which should help generate interest in new car purchase. Its key restrictions:

• Applies only to new vehicles (not used)
• Vehicle must be assembled in the U.S.
• Deduct up to $10,000 per year in loan interest
• Phased out for higher-income earners (above $100K single / $200K joint)

Though the used car market was excluded in the final version, industry leaders hope this policy drives increased new car sales—and with them, stronger trade-in volume for the used inventory pipeline.

New Overtime Rules

One area of the OBBBA that is causing some confusion for dealerships is the new federal income tax deduction for overtime pay for eligible employees.

The change in overtime pay does not change how employers calculate or pay overtime wages themselves. There was no change to overtime calculation or payment. Additionally, overtime wages are still fully subject to payroll taxes (federal income tax withholding, Social Security (FICA), Medicare, and any applicable state or local taxes). This means the immediate impact on an employee’s paycheck will be minimal and the deduction eligibility will be determined on their personal income tax return.

The OBBBA does require, however, employers to report qualified overtime compensation separately on Form W-2. This will necessitate accurate tracking of overtime hours and likely require updates to payroll systems. For 2025, employers can approximate the separate reporting of overtime using any reasonable method specified by the Treasury Secretary (further guidance is expected).

EV Credits Expiring

Electric Vehicle (EV) tax credits are significantly impacted. Under this new legislation, the existing federal tax credits for purchasing new EVs (up to $7,500) and used EVs (up to $4,000) are set to be abolished after September 30, 2025. This dramatically shortens the incentive period previously established by the Inflation Reduction Act (IRA), which was intended to extend until 2032.

The OBBBA’s changes aim to reduce government incentives for clean energy and electric mobility, potentially impacting EV adoption rates and the strategies of automakers and battery manufacturers.

It is likely this creates a short-term burst of activity for those interested in purchasing EVs as dealers are motivated to right-size inventory. For the long-term, it remains to be seen what impact, if any, this will have on the EV market. This likely changes some manufacturers’ strategy in this part of the market but the sustainability of the EV market does not appear to be threatened.

Estate Tax Relief for Family-Owned Dealerships

The estate tax exemption — crucial for multigenerational family-owned dealerships — was also extended and expanded.

• Previously set to expire to approximately $7 million in 2026.
• Now, the $15 million limit set in the 2017 Tax Cuts and Jobs Act (TCJA), is extended and made permanent.
• It will be adjusted annually for inflation beginning in 2027.

This offers long-term planning certainty for owners with asset-heavy estates, allowing for more equity to transfer to the next generation will less taxes involved.

Why This Matters

These tax law changes help dealerships in several critical ways:

• Preserve bonus depreciation despite high interest expenses
• Improve long-term estate planning for family succession
• Maintenance of tax advantages for pass-through entities
• Offer clarity for dealers navigating complex rebate timing and deductions

At Brady Ware, we help dealerships navigate shifting tax landscapes, develop long-term planning strategies, and capitalize on every available incentive—whether through depreciation planning, estate structuring, or compliance analysis. Questions about the OBBBA, its impact or other areas of your dealership? Let’s talk. We can help you model the tax implications based on your structure, growth plans, pending buy/sell activity or family and legacy preservation.

What’s Next

The OBBBA is a comprehensive tax bill and, while some of its provisions are extended or made permanent from prior legislation, we are still gauging its impact. Please look for additional thought leadership in the coming weeks as we become more familiar with its nuances and implications.