What Is Floor Plan Interest Expense

The taxpayer s floor plan financing interest expense.

What is floor plan interest expense.

Floor plan financing interest expense remained fully deductible under tax reform. 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. Whether other debt applies to floorplan interest on inventory acquired on or after 2 15 20. This floor plan finance formula will require a dealer to have a good handle on total dealership expenses and inventory for the entire month.

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. Interest but only interest on any other debt obligations that were incurred before 2 15 20. First a dealer would need to figure out their monthly holding cost.

34 business interest expense exceeding the limitation amount can be carried forward indefinitely. Floor plan financing interest expense sec. 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. For example automobile dealerships utilize floor plan financing to run their businesses.

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. 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. Based on a literal reading of the tax law some dealerships had been concerned. The loans are also inspected periodically by lenders by checking the inventory of all collateralized vehicles.

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. But it came at a cost. Other debt likely includes floorplan interest but not curtailment for inventory acquired before 2 15 20. Floor plan financing interest expense.

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 because inventories are so immense the car business is very sensitive to both floor plan interest rates and the tax treatment of interest expenses. Floor plan financing interest expense is interest paid or accrued on floor plan financing indebtedness.