OBBBA Enhances Facility Tax Deductions for Car Dealerships
In a significant move for the automotive industry, the One Big Beautiful Bill Act (OBBBBA), also known as H.R. 1, was passed on July 3, 2025, and signed into law by President Donald Trump on July 4, 2025. This comprehensive legislation brings about several changes that benefit car dealers, stimulating the US auto industry.
Ken Rosenfield, founder and partner at accounting firm Rosenfield and Co., highlights one of the key benefits: the permanent reinstatement of 100% bonus depreciation for qualified business property placed in service after January 19, 2025. This provision allows dealers to take immediate full cost deductions instead of spreading it over several years, enhancing deductions for facility improvements and equipment, providing greater tax savings and planning certainty for large capital investments.
Another significant change is the restoration of full deductibility of interest on loans taken for facility improvements. Previously, there were limitations on how much interest could be deducted. With this change, dealers who borrow money to make improvements can now deduct the associated interest expenses. Other dealership expenses, such as floorplan interest and loaner fleet depreciation, are also now fully deductible.
The OBBBBA also removes depreciation, amortization, and depletion from the calculation that limits business interest deductions, thus increasing the amount of interest dealers can deduct. This increase in deductibility is expected to reduce the after-tax cost of investments and financing for dealers, potentially facilitating growth and competitive financing offers.
In addition, the bill introduces a new consumer tax deduction for up to $10,000 per year in interest on loans for new vehicles assembled in the United States purchased from 2025 to 2028. This provision may stimulate demand for dealer-arranged financing.
Moreover, the OBBBBA expands Section 179 expensing limits, allowing dealerships to expense up to $2.5 million in qualifying assets immediately, benefiting rapid recovery on investments.
However, the elimination of purchase and lease tax incentives for electric vehicles, effective until September 30, 2025, may reduce EV demand. Ken Rosenfield suggests that consumers take advantage of the electric vehicle credits while they still last due to potential long-term impacts on EV demand.
The OBBBBA also increases the estate tax exemption for individuals to $15 million and for couples to $30 million. This increase may encourage gifting to successors or charities, according to Ken Rosenfield.
In the buy-sell area, the ability to deduct 100% of both interest and depreciation will influence how dealers allocate the price of an acquisition among goodwill, assets, and equipment. Some dealers may consider a sale/leaseback transaction instead of traditional financing to take advantage of the full interest deduction.
Starting in 2027, the exemption will be indexed for inflation using 2025 as the base year. Dealers currently have more than 114 days' supply of EVs, indicating a potential surge in demand due to the new tax incentives.
In conclusion, the OBBBBA substantially improves car dealers' tax positions by enabling immediate 100% depreciation on qualified property, restoring full deductibility of facility improvement loan interest, increasing business interest expense deductions, and expanding Section 179 limits. These changes are expected to stimulate growth and competitive financing offers in the automotive industry.
The OBBBBA's provision for permanent 100% bonus depreciation on electric vehicles placed in service after January 19, 2025, could potentially facilitate growth in the business of selling electric vehicles.
Moreover, the bill's introduction of a new consumer tax deduction for up to $10,000 per year in interest on loans for new electric vehicles purchased from 2025 to 2028 may stimulate demand for electric vehicles, offsetting the potential reduction in demand due to the elimination of purchase and lease tax incentives for electric vehicles.
