How the New Tax Bill Directly Impacts Automobile Dealerships

The latest tax legislation brings several significant changes that directly affect automobile dealerships. Understanding these provisions will help dealerships maximize benefits, improve customer conversations, and enhance overall profitability. Below is a breakdown of some of the most impactful changes and how your dealership can take advantage.

1. Auto Loan Interest Deductibility for Customers

Key Point: Your customers can now deduct interest expense on auto loans, regardless of whether they itemize deductions.

• This change makes auto financing more attractive, as more buyers will see real tax savings. Not all buyers qualify, as there are income limitations. It applies to loans originated from 2025 through 2028 on new vehicles assembled in the U.S (imports and used vehicles do not qualify).‍
• Action: Train your sales team and F&I managers to highlight this benefit during the sales process on qualified vehicles. Identify vehicles that qualify ahead of time. It can be a powerful tool to close deals and provide added value to your customers.

2. 100% Bonus Depreciation: Back and Permanent

Key Point: The return and permanence of 100% bonus depreciation is a major win for dealerships.

• Dealerships can now immediately expense the full cost of qualifying property placed in service after January 19, 2025, including equipment and furniture, as well as certain portions of manufacturer required facility upgrades, new acquisitions, and open point builds.[BB1] 
• This provision improves cash flow and encourages reinvestment in dealership infrastructure.

3. Qualified Business Income (QBI) Deduction Remains

Key Point: The QBI deduction is staying with no change.

• Dealerships operating as a qualified entity (such as S-corporations, partnerships, or sole proprietorships) can continue to deduct up to 20% of qualified business income. There was discussion of increasing this to 23% but the final bill keeps it at 20%. The original wage and asset limits still apply if income exceeds certain thresholds - aggregation can help dealerships with multiple related entities.
• This deduction directly reduces taxable income, resulting in substantial tax savings for many dealership owners.

4. Section 179 Expensing Limit Increased

Key Point: The Section 179 deduction limit has been increased to $2.5 million, with a phase-out starting at $4 million in qualifying property placed in service.

• Dealerships can now expense more of their equipment and property purchases immediately, rather than depreciating them over several years. Eligible property includes equipment, computers, certain vehicles, and certain software.
• This is another valuable tool for dealerships investing in new technology, equipment, or facility upgrades—especially in states that do not allow 100% bonus depreciation but do permit  Section 179 expensing. It can also apply to certain 39-year property that now qualifies for expensing, offering meaningful tax savings. Additionally, dealerships that are ineligible for bonus depreciation due to floor plan financing can still take advantage of Section 179.

5. Amortization and Depreciation Addback for Dealerships under Section 163(j)

Key Point: The addback for depreciation and amortization when calculating adjusted taxable income for purposes of the limitation on deductibility of interest for purposes of the limitation on deductibility of interest under Section 163(j)[BB2]  is now back—a huge benefit for many dealerships previously impacted.

• Previously, dealerships with floorplan interest faced limitations on non-floorplan business interest expense or taking bonus depreciation due to the 30% adjusted taxable income limitations under IRC. Sec 163(j). By allowing depreciation and amortization to be added back in calculating the income limitation, more dealers will be able to take advantage of bonus depreciation that they previously would not have been able to.

6. Floorplan Interest: Recreational Vehicles Now Included

Key Point: Interest paid on recreational vehicles (e.g., trailers) now qualifies as floorplan financing interest.

• Under prior law, only interest on motor vehicles (cars, trucks) counted as deductible floorplan financing interest, avoiding limitations from 163(j). Now, interest paid on inventory of non-motorized recreational vehicles (e.g., trailers, campers) are included. This means RV and trailer dealers can fully deduct floorplan interest regardless of 163(j) limitations.
• It levels the playing field for RV dealers and supports inventory diversity.

7. Alternative Fuel Vehicle Refueling Credit Termination Date Accelerated

Key Point: The tax credit for installing alternative fuel vehicle refueling property (e.g., EV chargers, hydrogen stations) will now terminate June 30, 2026, six years earlier than previously scheduled.

• This change affects dealerships planning to install or expand EV charging infrastructure. Previously, businesses could claim a credit of up to 30% of the cost of qualified property (capped at $100,000 per item of property) through December 31, 2032. With the new bill, that window closes after June 30, 2026.‍
• Action: Dealerships considering EV infrastructure upgrades should act quickly. Finalize installation plans and ensure property is placed in service before June 30, 2026, to qualify for the credit.

8. Clean Vehicle Credits Termination Date Accelerated

Key Point: The Clean Vehicle Credit (up to $7,500 for new EVs and $4,000 for used EVs) will no longer be available for vehicles purchased after September 30, 2025.

• The new deadline applies to the previously owned clean vehicle credit, clean vehicle credit, and qualified commercial clean vehicles credit. This change significantly impacts customer affordability and could reduce EV demand in the short term. The credit had been a major selling point for qualifying electric vehicles, especially for price-sensitive buyers.‍
• Action: Educate your sales team to communicate this deadline clearly to customers. Consider promoting eligible EVs aggressively through September 2025.

Action Steps for Dealerships

• ‍Educate your sales and F&I teams on the customer-facing changes regarding auto loan interest deductibility and clean vehicle credits.‍
• Review capital expenditure plans to leverage increased bonus depreciation and Section 179 limits. Consider EV infrastructure needs and timing of installation to take advantage of tax credits.

Each individual tax situation is different. Consult with your tax advisor to ensure you are informed on these tax changes and future bills to optimize and take full advantage of all changes from new laws.