GNYADA November 2015 Newsletter

OEM Facility Upgrades — How Can They Best Reduce Your Taxable Income? 6

Manufacturers in many cases reim- burse dealers for satisfying certain facility requirements — this is typi- cally called “facilities support.” This reimbursement qualifies as taxable income and a dealer cannot use IRC Code Sec 118 to treat the support as a contribution to the capital of the com- pany. The question is, can that money be directly used to reduce the dealer’s cost in performing the upgrades? The answer is maybe. The reimbursement amount from the OEM cannot simply be netted with the money the dealer spends on the improvements. (These can include anything from new showrooms, to new signs, to service department expansion, etc.) However, a permissi- ble way to offset these costs is to seg- ment the work being done into cate- gories that have shorter depreciable

lives and higher corresponding depre- ciation deductions.

expense up to $25,000 in qualified purchases; however, for the last sev- eral years, subsequent legislation late in the year has enabled that amount to go up significantly. (It was $500,000 before January 1st of this year, for example.) That enabling legislation is only in effect for the year of its pas- sage, after which it reverts back to the original $25,000. For that reason, dealers should monitor this closely with their accountants to assure they receive all available deductions, if and when the amount goes up again before the end of this year. Your timing is everything, on this issue. The most seamless way to off- set facility upgrade payments is by timing the depreciation deductions to occur in the same year that the upgrades are placed in service for depreciation purposes. flyers and on their website. Not only will you be helping numerous New Yorkers make it through the coming winter, but you’ll also drive traffic to your showroom, as the public drops off their donated coats. New York Cares and GNYADA will provide signage for collection sites in your showroom and service depart- ment, and GNYADA will arrange to have your collections picked up. Register here , to sign up your dealership as a public collection site, or contact Jennifer Berman at

Example: If a dealer spends $10 million on work classified as “building,” that cost depreciates over 39 years, which amounts to a quarter million in annu- al depreciation expense. But if the dealer, after doing a segregation study, can classify the work in depre- ciation categories with shorter lives, he/she might be able to recoup that cost as a depreciation deduction on an accelerated basis. For example, work classified as “furniture and fixtures” depreciates over just seven years; “equipment” has a five-year deprecia- tion life; “land improvements,” 15. Another benefit dealers can take advantage of involves IRC code Sec 179: In a given year, a dealer can With the approach of cold winter days, even colder nights, and very real concerns about people in need surviv- ing the season, GNYADA is again teaming up with New York Cares’ coat drive. You can help the cause by signing up as a public collection site for winter coat donations. Last year, GNYADA dealerships col- lected an amazing 5,000 plus coats. By working together and spreading the word across neighborhoods and communities, we hope to top that number this year. When you register as a collection site, your dealership will be listed in all of New York Cares’ press releases and

Join Dealers in DonatingWinter Coats Our 4th straight year with New York Cares — nearly 90 dealers already signed up.

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Jennifer@gnyada.com or 718.746.5900 ext. 235.

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

The Newsletter • November 2015

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