The recently passed One Big Beautiful Bill Act (OBBBA) brings several key legislative changes, and a few reaffirmations, that auto dealers should be aware of. While some updates may not directly impact dealership financials, they could influence customer behavior or create new compliance considerations. Below, we break down what matters most.
Auto Loan Interest Deduction
The new law allows for a temporary (2025 – 2028) above-the-line deduction for up to $10,000 of interest expense on qualified auto loans. Although this change doesn’t directly impact dealerships from a tax standpoint, it could affect how customers make buying decisions and shift consumer preference between buying and leasing. Dealers may want to revisit how financing options are positioned to help customers understand the long-term cost implications, particularly when closing a sale.
Section 163(j): Interest Expense Rules
Most dealerships are subject to Section 163(j), which limits the deductibility of business interest expenses. The OBBBA loosens those limitations by reinstating the add-back for depreciation, amortization, and depletion, effectively returning to an EBITDA-based calculation. While many auto-dealers rely on the special exceptions related to floor plan financing, the change would generally increase the amount of deductible non-floor plan interest expenses and potentially impact depreciation strategy. This is a nuanced and complex area, and we recommend reviewing your dealership’s financing strategy with a tax advisor to ensure you’re still optimizing your deductions.
Expiring Electric Vehicle Tax Credits
The new law has accelerated the phase-out of federal electric vehicle (EV) tax credits. Specifically, the Clean Vehicle Credits for new, previously owned, and commercial clean vehicles under IRC §30D, 25E, and 45W, respectively, will terminate after September 30, 2025. The new expiration timeline may create a short-term surge in EV demand as consumers rush to take advantage of the remaining credits. Dealers should consider adjusting inventory planning, marketing strategies, and sales messaging to highlight the limited-time nature of these incentives. As the EV market continues to evolve, staying ahead of regulatory shifts will be critical to maintaining a competitive edge.
Overtime Pay & Deductions – Compliance Check
The new law includes deductions for the premium portion of overtime pay (i.e., the “half” of time and a half that goes beyond regular pay). This may be relevant for dealership service departments or support staff. While the impact may be limited depending on how employees are classified and paid, it’s a good time to review wage and hour tracking and reporting procedures to ensure you are assisting your employees with any newly available deductions. Importantly, these new deductions do not impact withholding, and the deductible wages are still subject to certain types of taxes, such as state and local taxes.
Qualified Small Business Stock (QSBS) Eligibility
While not unique to auto dealers, the new law updates certain rules around QSBS under IRC §1202. QSBS allows eligible investors in certain C-Corporations to exclude some or all of their capital gains from federal tax upon sale of the stock. The new rules make it easier for businesses to qualify for the QSBS gain exclusion and increases the potential gain exclusion available. Only dealerships organized as a C-Corporation can qualify for these benefits, but restructuring opportunities may be available for partnerships and S-Corporations to benefit from the lucrative QSBS incentive. Additionally, dealerships with an eye towards expanding should be mindful of QSBS benefits when deciding how to structure future acquisitions.
Broad Tax Changes That Still Apply to Dealers
Beyond industry-specific updates, OBBBA includes several broadly applicable provisions that impact nearly all business owners:
- 100% Bonus Depreciation Returns: Great news for dealers investing in equipment, property improvements, or technology, as property acquired after January 19, 2025, now qualifies for 100% bonus depreciation.
- Increased Section 179 Limits: Higher expensing thresholds make it easier to immediately deduct purchases of qualifying property.
- No Changes to PTET (Pass-Through Entity Tax): Owners in states with PTET regimes can continue to benefit from current rules.
- Employee Retention Credit (ERC) filing disallowance and Extension of Statute of Limitations: ERC claims filed after January 31, 2024, would be disallowed regardless of whether the claims were timely or validly filed. Also included in the OBBBA, the statute of limitations on ERC claim examinations has been extended to six years from the filing of such claim. The original statute of limitations for examinations was three years.
- Relaxed 1099 Reporting Requirements: Reporting thresholds for 1099-MISC and 1099-NEC are increasing from $600 to $2,000 beginning in 2026, which may reduce the amount of 1099’s your business is required to file for your vendors providing services.
- Tax Changes Impacting Individuals: Owners should be mindful of changes affecting individual income taxation and how that will affect their personal tax returns, including permanent extension of the existing tax rates, increased SALT deduction and other changes impacting itemized deductions.
Final Thoughts
While some provisions of the OBBBA may require a deeper dive, especially around interest deductibility and financing structures, others present opportunities for auto dealers to maintain or enhance their tax positions. As always, a proactive review with your tax advisor is the best way to navigate the changes and ensure compliance.
Stay Informed on the OBBBA
We’re continuing to share timely insights to help you navigate the One Big Beautiful Bill Act. Find all our updates on the OBBBA Resource Hub, and follow us on LinkedIn and via email to stay connected.
If you need further guidance or have any questions, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
