The recently passed One Big Beautiful Bill (OBBB) marks one of the most sweeping tax reform packages in recent years, and its impact on automotive dealerships will be both immediate and long-lasting. From revamped depreciation rules and updates to business credits to limitations on interest deductions, the bill introduces a range of provisions that will reshape both day-to-day operations and long-term financial planning.
As trusted advisors to over 60 dealership groups spanning 150 locations across 10 states, the leaders of Rehmann’s Dealership Group have taken a close look at the legislation to help you cut through the complexity. In this article, we’ll break down the tax provisions most relevant to the dealership industry and provide practical considerations you can utilize when planning for tax year 2025 and beyond. Here’s what you need to know:
Section 199A Pass–through Deduction: Now Permanent
The 199A deduction, also known as the Qualified Business Income (QBI) deduction, allows eligible business owners to deduct up to 20% of their qualified business income from their taxable income. Created under the 2017 Tax Cuts and Jobs Act (TCJA) to provide tax relief to owners of pass-through businesses, such as partnerships and S corporations, the deduction was set to expire after 2025. The OBBB makes it permanent, offering long-term planning certainty for many privately held dealerships that operate as pass-through entities.
Note: The 199A deduction does not apply to C corporations, which are taxed differently and don’t qualify for the QBI benefit.
Bonus Depreciation: Now Permanent
One of the biggest wins for dealerships in the OBBB is the permanent extension of 100% bonus depreciation. This powerful tax tool allows businesses to immediately deduct the full cost of qualifying new or used assets, such as vehicles, equipment, furniture, and certain improvements, in the year they’re placed in service.
Under the TCJA, 100% bonus depreciation was originally introduced as a temporary measure, scheduled to phase out over time. Starting in 2023, the deduction began decreasing by 20% each year, dropping to 60% in 2024 and set to fall to just 40% in 2025 before disappearing altogether after 2026. This phaseout created uncertainty for dealership owners who anticipated making large capital investments.
OBBB reverses that phaseout and locks in 100% bonus depreciation permanently, giving dealerships the ability to confidently plan for major purchases and expansions without losing out on immediate tax benefits. This change can have a major impact on cash flow — especially in years when dealerships invest heavily in facilities, technology, or vehicle fleets.
Tip: To fully capitalize on this opportunity, dealerships undertaking significant building improvements should consider a cost segregation study. These studies identify and reclassify building components into shorter depreciation categories, allowing more assets to qualify for immediate expensing under the new bonus depreciation rules. Without one, dealerships may miss out on substantial upfront tax savings, leaving money on the table that could otherwise be reinvested into growth.
Section 179 Expensing: Increased … with Caveats
The OBBB provides that for property placed in service in taxable years beginning after December 31, 2024, the maximum amount a taxpayer may expense under Section 179 increases to $2.5 million, reduced by the amount by which the cost of qualifying property exceeds $4 million.
Unlike bonus depreciation, however, Section 179 is limited to the amount of taxable income the business earns. In other words, if your dealership doesn’t generate taxable income in a given year, you can’t use Section 179 to create or increase a tax loss.
There are also differing rules surrounding individual states’ conformity with federal tax law. For instance, if your dealership operates as a C Corporation in Michigan, any bonus depreciation taken on the federal income tax return would not be deductible on your Michigan Corporate Income Tax return. The state does, however, follow the same federal treatment for Section 179 expensing. By choosing Section 179, your C Corp gets the immediate deduction at both levels — federal and Michigan — but it is still subject to the same taxable income limitation noted above.
Section 163(j) Business Interest Expense: Favorably Modified
Section 163(j) places limits on the amount of business interest expense that can be deducted. Generally, the cap is 30% of Adjusted Taxable Income (ATI), plus any business interest income and a specific adjustment for floorplan financing interest — a key consideration for auto dealerships. ATI is calculated by making certain adjustments to taxable income, most commonly for business interest income and expense.
Effective for 2025, and permanently thereafter, the OBBB modifies the ATI calculation by allowing businesses to add back depreciation and amortization. This change effectively increases the ATI base, enabling dealerships to deduct a larger portion of their business interest expense, including floorplan interest, and fully leverage the expanded bonus depreciation provisions.
Before OBBB, many dealerships were restricted from claiming full bonus depreciation due to the interplay between floorplan interest adjustments and eligibility rules. The new ATI calculation removes that barrier, offering a more favorable tax position for capital-intensive businesses like auto dealerships.
Note: The interest expense limitation only applies to businesses with average annual gross receipts exceeding $31 million over the prior three tax years. This threshold is indexed annually for inflation, so dealerships near the cutoff should actively monitor their revenue to ensure compliance and planning as it relates to section 163(j).
Car Loan Interest Deduction: New
For individuals purchasing new vehicles, the OBBB introduces a new deduction that poses a great opportunity for dealerships: qualifying vehicle loan interest, available for personal vehicles purchased between 2025 and 2028. This deduction is capped at $10,000 per year and can be claimed even if a taxpayer doesn’t itemize deductions. However, it is subject to an income-based phase-out: It begins at $100,000 of modified AGI ($200,000 for joint filers) and is fully phased out at $150,000 ($250,000 for joint filers).
For buyers to qualify, the vehicle must be a new personal vehicle (including cars, minivans, vans, SUVs, pickup trucks, or motorcycles) for which final assembly occurred in the United States. Lenders and other payors who receive more than $600 in qualifying interest payments in a calendar year will be required to provide information reporting (likely through a new version of Form 1098).
Overtime Compensation Deduction: New
The OBBB also introduces a new deduction for qualified overtime compensation. This deduction, available for tax years 2025 through 2028, can be claimed by both itemizers and non-itemizers. Individuals can deduct a maximum of $12,500 per year, while joint filers can deduct up to $25,000.
For tax year 2025, the earnings are still subject to all applicable federal and state withholding, as well as Social Security and Medicare taxes. Employers will be required to report this qualified overtime compensation separately on W-2 forms. Beginning with the 2026 tax year, withholding tables will be revised to reflect this deduction. State guidance regarding this provision is not yet final.
Clean Energy Vehicle Credits: Expiring Quickly
The OBBB makes several changes to clean vehicle credits:
- It accelerates the expiration of the previously owned clean vehicle credit for any vehicles acquired after Sept. 30, 2025.
- It accelerates the expiration of the clean vehicle credit for any vehicles acquired after Sept. 30, 2025.
- It accelerates the expiration of the qualified commercial clean vehicles credit for any vehicles acquired after Sept. 30, 2025.
- The alternative fuel vehicle refueling property credit for eligible charging stations will be terminated for property placed in service after June 30, 2026.
Clean Energy Investment Tax Credit: Modified & More Challenging
The OBBB significantly alters the Investment Tax Credit (ITC) under Section 48E. It terminates the ITC for new solar projects placed in service after 2027 — however, projects that begin construction within one year of OBBB enactment can avoid this deadline through a safe harbor.
Additionally, the domestic content percentage required to qualify for the ITC’s domestic content bonus incrementally increases, starting with facilities that begin construction after June 16, 2025, making this bonus more challenging to achieve over time.
Form 1099 Reporting: Modified to Streamline
The OBBB not only increases the reporting threshold for issuing 1099s from $600 to $2,000 but also adjusts it for inflation, meaning dealerships paying independent contractors for services will only need to report those payments that exceed $2,000 annually per contractor. This change is expected to reduce paperwork and lower administrative costs and burdens for dealerships that rely on multiple vendors.
Your Takeaway
The One Big Beautiful Bill brings sweeping changes to the tax landscape for dealerships, and failing to act on these changes could introduce compliance risks or result in your organization missing out on significant tax benefits. Navigating the new provisions will require more than surface-level awareness, and it is recommended that dealerships work closely with their tax advisors to understand the specific impacts on their business, identify risks, and uncover opportunities to implement long-term planning strategies.
Want to get a clear understanding of how these tax provisions will impact your business? Reach out to Rehmann’s Dealership Group for tailored insights or connect directly with Sam Kostrzewa at [email protected] for expert guidance.
Bonus Content: To learn more about how One Big Beautiful Bill tax reform may impact you and your business, click here.
About the Author: Sam Kostrzewa is a member of the firm’s Dealership Group, where he focuses on tax compliance and consulting services for privately held dealerships and their owners. He also boasts extensive experience in state and local taxation, regularly advising clients on multi-state tax matters.
