The One Big Beautiful Bill Act (OBBBA) brings several changes that affect automobile dealership owners. For dealers who rely on floor-plan financing or who own real estate, the bill provides meaningful opportunities to reduce taxes, improve cash flow, and invest back into their businesses.
Below are the key provisions of OBBBA that matter most to auto dealers, and what they mean in practice.
More Room for Business Interest Deductions
In the past, under Code Section 163(j), auto dealers could only deduct interest expenses up to 30% of Adjusted Taxable Income (ATI), calculated on an EBIT basis (earnings before interest and taxes). That calculation excluded depreciation and amortization, limiting deductions and blocking many dealers from claiming bonus depreciation.
What’s Changed:
- For tax years starting after December 31st, 2024, OBBBA now calculates ATI on an EBITDA basis (earnings before interest, taxes, depreciation, and amortization).
- Dealers now have a higher ceiling for interest deductions and the ability to deduct bonus depreciation to minimize tax liabilities.
- Dealers will be able to deduct bonus depreciation if they remain under the limit set in Code Section 163(j).
- Starting in 2025, the definition of “motor vehicles” for floor-plan interest also expands to include trailers and campers designed for temporary living quarters for recreational, camping, or seasonal use and designed to be towed by, or affixed to, a motor vehicle
Why it Matters:
- The add back of depreciation and amortization increases the amount of deductible interest by taxpayers.
- This gives many auto dealers a higher ceiling for interest deductions and the ability to deduct bonus depreciation to minimize tax liabilities.
Permanent 100% Bonus Depreciation
Before OBBBA, bonus depreciation was scheduled to phase down to 40% in 2025, 20% in 2026, and disappear by 2027.
What’s Changed:
- OBBBA restores 100% bonus depreciation permanently for qualifying property placed into service after January 19, 2025.
- Binding contract rules can affect bonus eligibility so consulting with an expert is best.
Why it Matters:
- Large capital projects such as real estate construction, renovation or acquisitions, machinery, service equipment, and showroom improvements can be immediately expensed.
- Facility upgrades required by manufacturers no longer create as much tax strain since most of the improvements can now be deducted immediately.
- Dealers get improved cash flow and reduced taxable income in the year of investment.
- Utilizing a cost segregation study can help maximize benefit and deductions.
Higher Section 179 Expensing Limitation
For property placed into service after December 31, 2024, OBBBA also enhances Section 179 expensing:
- The deduction limit rises to $2.5 million.
- The dollar-for-dollar phaseout begins at $4 million in qualifying property cost.
Why it Matters:
- Provides another tool to deduct capital investments, especially for dealers who don’t qualify for bonus depreciation.
- Can be more beneficial in states that conform with Section 179 but not bonus depreciation.
- Helps lower both federal and state income tax liability.
Bottom Line: More Flexibility, More Savings
The One Big Beautiful Bill Act gives auto dealers powerful tools to manage their tax liability and reinvest in their businesses. With expanded interest deductions, permanent 100% bonus depreciation, and higher Section 179 limits, dealerships can reduce taxable income, increase cash flow, and free up capital for growth.
For dealers planning facility upgrades, equipment purchases, or expansions, working with a tax advisor to align these provisions with business goals will ensure that dealerships get the maximum benefit.
