The end of the year often brings presents and surprises for automobile dealers, and 2015 was no different.
Late last year, Congress moved to make many of the so-called “tax extenders” permanent incentives under the tax code. These changes will impact your dealership and your annual tax planning in the year ahead.
Several of the provisions of the “Protecting Americans from Tax Hikes Act of 2015,” or PATH, can have a positive impact on your dealership.
Mainly, the new rules will allow dealers and their customers to expense a larger portion of business-equipment purchases. These new provisions should be of particular interest to those purchasing cars and trucks for business purposes.
In addition, the new law extends an additional $8,000 in first year-depreciation for certain business vehicles purchased in 2015. The National Automobile Dealers Assn. says the provision “provides substantial potential savings for a dealership’s business customers.”
Perhaps the most significant provision made permanent for auto dealers under PATH has to do with “Section 179 Expensing.”
It allows businesses to deduct up to $500,000 for “qualifying asset” additions such as equipment, furniture and machinery. The provision was set to expire in 2015. The total deduction for vehicles that have greater than 50% business use is $11,060 for cars and $11,160 for trucks and vans. These limits are inclusive of all Section 179 expensing as well as 50% bonus depreciation allowances.
Models with gross vehicle weights of more than 6,000 lbs. (2,722 kg) but less than 14,000 lbs. (6,412 kg) qualify for Section 179 expensing but are limited to a maximum deduction of $25,000.
Certain vehicles qualify for the full Section 179 expense deduction. These vehicles include those designed for commercial use, such as models with capacity for nine or more passengers, cargo areas with a minimum of 6 ft. (1.8 m) in length, fully enclosed driver’s compartments, no seating behind the driver’s seat and those with no body protruding more than 30 ins. (762 mm) ahead of the leading edge of the windshield.
Dealers also should consider the benefits of the bonus-depreciation modification. This has not been made a permanent part of the code, but has been extended over the next five years.
It allows a dealership to deduct 50% of the cost of new property and qualifying equipment in the first year of purchase and the rest of the cost “over the course of its useful life.”
The credit decreases on a sliding scale until it finally will expire in 2020. The 50% credit will be in effect from 2015 to 2017. It becomes 40% in 2018, 30% in 2019 and expires in 2020. Knowing how this credit will change over the next five years can help you plan ahead for large equipment purchases for your dealerships.
Tax planning is something that has to be done throughout the entire year. However, over the last few years the annual scramble to see if the tax extenders would again renew was like trying to coach a game of football where the rules could and did change in the final minutes of the last quarter.
These now-permanent changes to the tax code greatly reduce the yearly uncertainty faced by dealerships and their financial advisors. In a market and an economy loaded with its fair share of volatility, having something your dealership can rely on can make difficult tax-planning strategies that much easier.
Ira Silver, CPA, CGMA, is the principal-in-charge of the Orlando office of accounting firm MBAF, one of the top 40 accounting firms in the country. For more information, visit www.mbafcpa.com.