Floor Plan Interest Deductibility Limited for Trailers

Trailer dealers may want to pay close attention to limitations on the ability to deduct interest on floor plan loans (a specialized loan that funds vehicle inventory) included in H.R.1 – An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018.

The former 100 percent deduction of floor plan interest has been reduced to from 100 percent to 30 percent of adjusted taxable income, and treats dealerships, generally as closely-held small businesses, the same as large corporations.

However, it is important to note that while floor plan interest appears to be fully deductible, it appears to be limited to auto and truck dealers only based on the definition of a “motor vehicle” in the new legislation.

According to Tim Reynolds, CPA, Principal, with CliftonLarsonAllen LLP, “Trailers are not considered “self-propelled” and they may not fall under the farm machinery and equipment category either.”

Therefore, trailers would not meet the criteria for 100 percent deduction of interest on floor plan loans under the new tax reform law.

The NTDA recommends contacting your legislators and simply ask them to revise the wording to include the word “trailers” as self-propelled because they require a tractor to pull them. Changing the wording would in effect allow floor plan interest to be considered 100 percent deductible once redefined.

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