What Is Floor Plan Financing Interest Expense

First figure out your monthly holding cost.

What is floor plan financing interest expense.

Floor plan financing interest expense is interest paid or accrued on floor plan financing indebtedness. For example if you own an automobile dealership and paid. 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. Based on a literal reading of the tax law some dealerships had been concerned.

Certain interest expense paid or accrued on indebtedness used to acquire an inventory of motor vehicles i e floor plan financing interest expense is deductible without regard to the irc 163 j limitation. Floor plan financing interest expense remained fully deductible under tax reform. Floor plan loans are among the safest of all financial instruments. So how does floor plan financing work.

Floor planning is a form of financing for large ticket items displayed on showroom floors. 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. Floor plan financing interest expense. 35 while the limitation applies to all business entity.

Taxpayers are also permitted to elect to apply the more restrictive 30 of ati limit. 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 financing interest expense is not subject to the section 163 j limitation. The loans are also inspected periodically by lenders by checking the inventory of all collateralized vehicles.

The taxpayer s floor plan financing interest expense. The money borrowed from the bank collects interest and one has the choice to either make a minimum payment or pay off the balance in full when the bill is due. To do this subtract your monthly selling expenses from your total expenses for the month. 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.

Your monthly selling expenses are variable monthly expenses that are not charged to the. But because inventories are so immense the car business is very sensitive to both floor plan interest rates and the tax treatment of interest expenses. But it came at a cost. Dealerships that take the floor plan financing interest exclusion in computing their limit can t claim 100 bonus depreciation for their fixed asset additions.

34 business interest expense exceeding the limitation amount can be carried forward indefinitely. This floor plan finance formula requires a good handle on total dealership expenses and inventory for the entire month.