OBBBA Accelerates Tax Breaks for Auto Dealerships
The One Big Beautiful Bill Act (OBBBBA), recently passed, brings significant changes for the automotive industry, particularly for auto dealers. The Act includes provisions that directly and indirectly benefit dealerships, such as facility improvements, expenses, and estate tax exemptions.
One key provision is the permanent extension of the 100% bonus depreciation for qualified property acquired after January 19, 2025. This means dealerships can fully expense the cost of facility improvements and capital investments in the first taxable year, accelerating tax savings on investments like buildings or major equipment used in the dealership.
Additionally, OBBBBA allows qualifying structures, such as factories or facilities, to be depreciated immediately in the first year rather than over the standard 39-year schedule. This encourages capital investment in production or facility improvements located in the US, indirectly benefiting dealerships expanding or upgrading facilities.
The Act also increases the lifetime estate and gift tax exemption. For deaths and gifts occurring after December 31, 2025, the exemption increases from roughly $13.99 million to a base of $15 million per person, indexed for inflation thereafter. This results in fewer estates of dealership owners being subject to federal estate tax, supporting wealth preservation across generations.
Moreover, the bill does not limit pass-through entity tax deductions at the state level, which are often used as workarounds for the SALT cap. Auto dealerships structured as pass-through entities can continue leveraging these deductions, indirectly reducing overall tax burdens on business expenses.
The OBBBBA also introduces a new federal tax deduction allowing car buyers to deduct up to $10,000 per year in loan interest for vehicles assembled in the US purchased between 2025 and 2028. This may boost dealership sales and financing by attracting middle-income buyers concerned about monthly payments.
However, the Act also presents challenges for electric vehicle (EV) sales. Dealers currently have more than 114 days' supply of electric vehicles, and the elimination of purchase and lease tax incentives for electric vehicles ends on September 30, 2025. The long-term impact on electric vehicle demand is uncertain, and the Act may reduce demand for electric vehicles in the long term due to the elimination of tax incentives.
Despite these challenges, a positive change for consumers is the ability to deduct their car interest due to the OBBBBA. Starting in 2027, the estate tax exemption will be indexed for inflation using 2025 as the base year.
- The OBBBBA introduces a new federal tax deduction that allows car buyers to deduct up to $10,000 per year in loan interest for vehicles assembled in the US purchased between 2025 and 2028, which may boost dealership sales and financing by attracting middle-income buyers concerned about monthly payments.
- Despite the challenges for electric vehicle (EV) sales presented by the OBBBBA, such as the elimination of purchase and lease tax incentives for electric vehicles ending on September 30, 2025, there is a positive change for consumers, as they will now have the ability to deduct their car interest starting in 2027.
