What Is Floor Plan Interest Expense

Whether other debt applies to floorplan interest on inventory acquired on or after 2 15 20.

What is floor plan interest expense.

Floor plan financing interest expense. In a change made by the cares act taxpayers can elect to use their 2019 ati in computing the 2020 limit helping taxpayers whose income declines in 2020. Floor plan financing interest expense sec. To figure this out a dealer would subtract their monthly selling expenses from their total expenses for the month.

Floor planning is a form of financing for large ticket items displayed on showroom floors. Based on a literal reading of the tax law some dealerships had been concerned. 34 business interest expense exceeding the limitation amount can be carried forward indefinitely. Floor plan financing interest expense is interest paid or accrued on floor plan financing indebtedness.

The loans are also inspected periodically by lenders by checking the inventory of all collateralized vehicles. Floor plan financing interest expense is interest on debt used to finance the acquisition of motor vehicles held for sale or lease where the debt is secured by the acquired inventory. 163 j rules which covered so called earnings stripping and denied a corporation s interest deduction for disqualified interest to the extent it had excess interest expense in a year that its debt to equity ratio was greater than 1 5 to 1. A business can deduct its business interest only to the extent of its business interest income plus 30 of business adjusted taxable income plus the business s floor plan financing income.

For example automobile dealerships utilize floor plan financing to run their businesses. 35 while the limitation applies to all business entity. Dealerships that take the floor plan financing interest exclusion in computing their limit can t claim 100 bonus depreciation for their fixed asset additions. The taxpayer s floor plan financing interest expense.

This floor plan finance formula will require a dealer to have a good handle on total dealership expenses and inventory for the entire month. First a dealer would need to figure out their monthly holding cost. Floor plan financing interest expense is not subject to the section 163 j limitation. Taxpayers are also permitted to elect to apply the more restrictive 30 of ati limit.

But it came at a cost. Floor plan financing indebtedness is indebtedness that is used to finance the acquisition of motor vehicles held for sale or lease and that is secured by the acquired inventory. Floor plan loans are among the safest of all financial instruments. Floor plan financing interest expense remained fully deductible under tax reform.