Since the OBBB passage, how familiar are most dealers with the OBBB and the impact on their businesses?

CLA: Dealers have been coming up to speed on the OBBB’s provisions and are familiar with many of the elements that are being extended from the 2017 Tax Cuts and Jobs Act (TCJA). The OBBB introduces new policies and expands on others, the nuances of which can have a significant impact on dealer’s business and personal financial planning including:

• Disclosure Business tax provisions
• Disclosure Estate planning
• Disclosure Growth and transition
• Disclosure Philanthropy and personal tax planning
• Disclosure Bookkeeping and reporting

What’s changing in the OBBB that’s relevant for how auto retailers run their business? How do the provisions affect their tax strategy?

CLA: There are five key areas which are important to understand. Dealers should pay attention to:

• Disclosure Bonus depreciation
• Disclosure Business interest deduction limitation
• Disclosure Towables
• Disclosure QBI (Qualified Business Income) deduction
• Disclosure R&D

The return to 100% bonus depreciation provides a huge incentive for dealers considering capital investments. In recent years, the depreciation deduction had been declining, but now a dealership can claim 100% depreciation of acquired assets immediately—a boon for cash flow.

There are specific conditions that you need to watch. If you’ve acquired property and placed it into service before January 19, 2025, the old 40% rate applies rather than the full 100% expensing available under OBBB.

The flexibility of bonus depreciation will help with annual tax planning. It allows you to buy equipment or property as late as December 31st, put it in service, and get an immediate write-off. This is a useful lever if you need that deduction by year-end.

For example, in certain circumstances, you can use bonus depreciation for the dealership’s service vehicles, when the vehicle is owned. These vehicles can be considered fixed assets, not inventory, and the majority turn over in about a year. This year you can capture 100% bonus depreciation on qualifying loaner fleet that is in service by December 31. Airplane brokers are expecting a strong year for business owners to take advantage of bonus depreciation for a new plane.

Changes to the business interest deduction are another area dealers should study closely.

OBBB changes the calculation of adjusted taxable income (ATI), which is the basis for the 163(j) limitation on the amount of business interest that can be deducted—30% of ATI in any one year. Since 2022, ATI was calculated based on EBIT, but OBBB changed the calculation to base it on EBITDA, providing a much higher ceiling on interest allowed by 163(j). All along auto dealers have had a floorplan exception that allows them to deduct floorplan interest above the 163(j) 30% of ATI limitation. But dealers that use this floorplan exception lose the ability to take advantage of bonus depreciation.

While these rules have set up complex tax decisions and tradeoffs, larger dealership groups with significant fixed asset additions, lease additions, or new buildings may benefit from the higher EBITDA-based 163(j) ATI limits. Averting the use of the floorplan interest exception and maintaining access to bonus depreciation will have a substantial impact on taxes.

The OBBB bill includes towables in the definition of plan-eligible property, not just motorized vehicles. Before OBBB, RV dealers couldn’t deduct floor plan interest for towables because there was no floor plan interest carveout in 163(j) for these vehicles. Now they can. These dealers will see a boost in interest deductions in 2025.

For the dealers who are in pass-through businesses, the big news was the extension of the qualified business income deduction (QBI) that provides an extra 20% tax deduction.

Unfortunately, dealers haven’t been maximizing that deduction as they take high salaries that reduce the deduction. For example, if you’re taking a million-dollar salary out of a pass-through business, that salary is subject to a 37% tax rate, but it's also decreasing your qualified business income deduction. If you cut the salary down to $300,000, with an eye on reasonable compensation, you boost your business income by an extra $700,000—with those funds being QBI deduction-eligible.

It gets more complicated when you have minority owners. There are compensation strategies like profits interest that you might use to pass on QBI-eligible tax benefits to a general manager instead of a W2 bonus structure or straight equity stake. It’s worth exploring those options with your CPA.

Another big win for dealers is with R&D deductions. Under OBBB, Section 174 costs for R&D are fully deductible once again. R&D expenses include upgrades or replacements of DMS platforms, enterprise solution customization, and internally developed AI tools.

Starting in 2022, dealers had to capitalize and amortize those costs, but now they’re eligible for immediate expensing. Dealers that already implemented an ERP change or incurred other large development expenses can claim any unamortized costs from 2022, 2023, and 2024 in 2025 or spread it over 2025 and 2026. (If you’ve got significant deductions in 2025, you might want to save some of these unamortized R&D costs for next year.)

Your tax advisor can help you work through all the OBBB changes to help you identify strategies that take advantage of the latest opportunities.

OBBB permanently expanded the estate tax exemption to $15 million per individual, with annual increases for inflation. What’s the effect on estate planning for dealers?

CLA: OBBB avoided a reversion of the estate tax exemption to a lower level, locking in the $15 million per person exemption and providing for increases for inflation.

The reality for many dealers is that this exemption threshold is still well below the franchise’s value that they’re looking to pass on. While the OBBB doesn’t specifically provide new avenues for estate planning, it’s still an opportune time to revisit your plans. Start with an up-to-date valuation of your dealership and work with your financial advisors and your CPA to consider the following strategies.

• For dealers with brands that have been facing challenges, take advantage of an attractive estate planning window and make moves at depressed valuations. The same holds for any dealer who expects meaningful growth in the value of the franchise in coming years—make moves now at a lower valuation.
• Review your use of estate planning tools like SLATs (Spousal Lifetime Access Trusts) and IDGTs (Intentionally Defective Grantor Trusts). Reviewing these structures routinely to make sure the features that dictate governance, distributions to you and your successors, discounts of ownership interest based on limited control, etc., are in line with your current goals and business and personal situation.
• If you’re eyeing growth, make sure your estate planning gets ahead of any new franchise add point awards, so your spouse or family has the best opportunity for a stepped-up basis.
• Review your current estate planning strategy—whether focusing on passing wealth through the business’s value, real estate, or a mix of both—to see that it fits your projected growth in franchise value and real estate value given the conditions in your market. The answer in Dallas might be different from the answer in Tulsa.

A sweeping tax package like OBBB has ripple effects that hit everything from day-to-day decisions to major transactions. What does it mean for growth strategies? How about for transitioning planning?

CLA: OBBB does not fundamentally change the issues in a buy-sell situation, but there are considerations for dealers who might potentially end up on either side of a sale.

The return of bonus depreciation with OBBB means that buyers and sellers must pay close attention in negotiating a deal. Bonus depreciation needs to be recaptured upon sale and that’s at ordinary income rates. Purchase price allocation between fixed assets and goodwill becomes paramount. As a seller, I want the allocation to favor goodwill so that I receive capital gains treatment, not fixed assets where my depreciation recapture comes at ordinary rates.

Beyond OBBB considerations, sellers should always remember that how your company is structured is often the main determinant of the tax consequences of a sale. A C Corp asset sale is taxed twice, once when a buyer purchases the assets and the corporation pays taxes on the gain and again when the net value is distributed.

If you want to convert to an S corporation before your planned exit to reduce taxes on sale, you need five years of runway before the transaction to avoid the built-in gains tax. While it can be a challenge to look that far on the horizon, understanding your business goals and tying them to long-range exit planning is incredibly important to minimize the tax you’ll pay on exit.

Auto retailers tend to be generous and engaged, both locally and globally. What do they need to know about charitable contributions and personal tax planning under OBBB?

CLA: There are new limitations around charitable giving coming in 2026—a half percent floor based on AGI. That means that if your AGI is $100,000, you’ve got to spend more than $500 to claim a deduction. Highly charitably inclined dealers are considering accelerating contributions into 2025, using things like a family foundation or a donor-advised fund to pre-fund contributions.

Typically, we'd advise putting appreciated securities into the fund—things like Apple stock you bought 10 years ago and have no basis in—rather than cash. That way, you don’t pay tax on the gain, and you get a fair market value deduction. But you’ve got to look at all the other deductions you’re taking from the business to make sure you’re getting the right answer for charitable donations. Before you accelerate planned giving, dealers should review their AGI and model different deduction strategies with financial and tax planners.

What other important regulatory changes and action items should dealers know about under OBBB?

CLA: There are a handful of compliance and reporting changes to note, like overtime reporting on W-2s. Employees now get up to a $25,000 deduction for overtime pay. Dealerships need to ensure that overtime wages are clearly separated out. This means payroll systems and reporting must be updated so you’re ready for year-end filings.

Starting in 2026, the 1099 reporting threshold for vendors and contractors rises to $2,000. It stays at $600 for 2025.

On the customer side, car buyers can now deduct interest up to $10,000 with income level phaseouts on qualified auto loans. Dealers should be prepared to answer questions from buyers and have updated information sheets ready for the F&I office.