What Is Floor Plan Financing Interest Expense

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.

What is floor plan financing interest expense.

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 not subject to the section 163 j limitation. 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. But it came at a cost.

The loans are also inspected periodically by lenders by checking the inventory of all collateralized vehicles. This floor plan finance formula requires a good handle on total dealership expenses and inventory for the entire month. 35 while the limitation applies to all business entity. Floor plan financing interest expense.

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. Floor plan loans are among the safest of all financial instruments. 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. 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.

First figure out your monthly holding cost. For example if you own an automobile dealership and paid. Dealerships that take the floor plan financing interest exclusion in computing their limit can t claim 100 bonus depreciation for their fixed asset additions. Floor planning is a form of financing for large ticket items displayed on showroom floors.

For example automobile dealerships utilize floor plan financing to run their businesses. 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. Taxpayers are also permitted to elect to apply the more restrictive 30 of ati limit.

Floor plan financing interest expense is interest paid or accrued on floor plan financing indebtedness. Floor plan financing interest expense. So how does floor plan financing work. Much like a credit card a floor plan financing company extends a line of credit to a car dealer.

34 business interest expense exceeding the limitation amount can be carried forward indefinitely. To do this subtract your monthly selling expenses from your total expenses for the month.