AED Alert: IRS Issues Bonus Depreciation Regs, Clarifies Tax Law’s Floor Plan Provision

The Internal Revenue Service (IRS) recently issued proposed regulations governing IRC §168(k), which after the Tax Cuts & Jobs Act’s enactment, permits bonus depreciation (100 percent through 2022) on certain equipment purchases. The new proposal gives construction equipment dealers that sell other types of equipment or vehicles (such as trucks and farm equipment) greater flexibility to take advantage of bonus depreciation.

AED strongly supports 100 percent bonus depreciation and has a long track-record of advocating for capital investment incentives in Washington. The Association was instrumental in ensuring that construction equipment distributors are able to take advantage of the tax law’s full expensing provision by successfully lobbying to remove “construction machinery and equipment” from a carve-out prohibiting dealers with floor plan financing from utilizing bonus depreciation.

Since the Tax Cuts & Jobs Act’s passage, AED has worked with the Department of Treasury, IRS and Congress on the law’s implementation, which included urging relief for AED members that sell construction equipment and other machinery or vehicles, such as farm equipment and trucks, to utilize bonus depreciation.

The IRS’s proposed regulations grant much-needed flexibility to equipment dealers by clarifying that dealerships with floor plan financing indebtedness are ineligible for bonus depreciation only if such interest is in fact “taken into account” and a company received a benefit from section 163(j)(1)(C) (i.e., if total business interest expense, including floor plan financing interest, exceeds business interest income plus 30 percent of adjusted taxable income). Additionally, this is an annual test, allowing dealers that may have been prohibited from taking advantage of bonus depreciation due to excessive business interest in one year to utilize it subsequently.

It’s imperative that equipment dealers consult with your CPA and tax attorney to determine the impact on your company. The IRS is accepting public comment on the proposal, but taxpayers may rely on the determinations until a final rule is issued. Please provide any feedback and concerns to AED’s Vice President of Government Affairs Daniel B. Fisher.

Review the bonus depreciation proposed regulations and the docket visit here.