GNYADA May 2018 Newsletter

How Will the Tax Cuts and Jobs Act (TCJA) Affect Dealers? 11

have been made eligible for this deduction, which is a benefit as long as it does not cause the phase-out to kick in. Temporary 100% bonus depreciation on qualified business assets: For new or used qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023, a 100% first-year deduction is permitted for the adjusted basis. Beginning in January 2018, dealerships will not be able to use the 100% bonus depreciation. Congress decided to offset bonus depreciation with the continued deduction for interest on floor plan financing, which had the potential to be limited under the new law. Limitation on deduction of business interest: For tax years beginning after December 31, 2017, every business is generally subject to a disallowance of a deduction for net interest expense, in excess of 30% of the business adjusted taxable income. This will apply to capital loans, mortgages for image program improvements,

and owner loan interest. n Exceptions: Average annual gross receipts of less than $25m for a three-year tax period ending with the prior tax year; floor plan financing. Entertainment expenses: For amounts incurred or paid after December 31, 2017, the only allowable entertainment expense deduction is 50% for business meals. Estate and gift tax exemption: For estates gifted after December 31, 2018 and before January 1, 2026, the estate and gift tax exemption is increased to $11.2m per person, $22.4m for a married couple. The TCJA ushers in significant changes so dealers are advised to consult their tax advisers to understand the business and personal implications. Dealers who are NADA members can read “A Dealer Guide to the Tax Cuts and Jobs Act of 2017” at https://www.nada.org/WorkArea/Dow nloadAsset.aspx?id=21474853930 n n

The Federal Tax Cuts and Jobs Act (TCJA), signed into law on December 22, 2017, encompasses many changes that will directly impact dealers and dealerships. Some changes include: New deduction for pass- through income: Generally, for tax years December 31, 2017 – January 1, 2026, an individual taxpayer with Qualified Business Income (QBI) from a partnership, S-corporation, or sole proprietorship can deduct up to 20% from QBI, depending on various limitations. If applicable, this can reduce the effective tax rate for dealership taxable income from 37% to 29.6%. Reduction of Corporate Tax Rates: Under the TCJA, C-corporations are taxed at a flat rate of 21%. Section 179 Expenses: The maximum amount that may be expensed under code section 179 n n n for property placed in service beginning after December 31, 2017, is increased to $1m and the phase-out threshold is increased to $2.5m. Additionally, new items

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Greater New York Automobile Dealers Association • www.gnyada.com

The Newsletter • May 2018

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