Accelerating Deduction Reductions at Dealership Facilities by OBBBA
The One Big Beautiful Bill Act (OBBBA), signed into law by President Donald Trump on July 3, 2025, brings significant changes for automobile dealers and consumers alike.
One of the most notable provisions for dealers is the introduction of a federal tax deduction that allows car buyers to deduct up to $10,000 per year in loan interest on new vehicles assembled in the United States purchased between 2025 and 2028. This tax break, expected to increase demand for dealer-arranged financing, is particularly appealing to middle-income buyers concerned about monthly payments [1][4][5].
Another key provision impacting dealers is the reinstatement of the 100% deduction for bonus depreciation of qualified assets for all property acquired beginning Jan. 20, 2025. Previously, the rate was 40%. This change improves deductions related to large floorplan interest expenses that many dealerships carry [2].
The bill also maintains the ability for dealerships, which often operate as pass-through entities, to use state-level pass-through entity tax workarounds for state and local tax deductions without new limits, preserving an important tax planning method [3].
However, dealers focusing heavily on electric vehicle (EV) sales face challenges, as the OBBBA repeals federal EV tax credits starting September 2025 and imposes new annual fees on EVs and hybrids. The elimination of EV tax incentives may reduce demand for electric vehicles in the long term, but it encourages consumers to take advantage of the credits while they still last [1].
In the buy-sell area, the ability to deduct 100% of both interest and depreciation will influence how dealers allocate the price of an acquisition among goodwill, assets, and equipment. Additionally, dealers can now borrow money for facility improvements, and the interest will be deductible [6].
It's worth noting that because there is still a form of interest expense limitation, dealers should consider a sale/leaseback transaction rather than traditional financing to take advantage of the full interest deduction [7]. The ability to deduct up to $10,000 annually in auto loan interest for vehicles assembled in the U.S. is now deductible from 2025 to 2028, opening up the possibility for more Americans to claim deductions on their car interest, according to Rosenfield [8].
The estate tax exemption for individuals has increased to $15 million under the OBBBA, and for couples, it has risen to $30 million. Starting in 2027, the estate tax exemption will be indexed for inflation using 2025 as the base year [9][10].
In summary, the OBBBA offers several substantial benefits to automobile dealers primarily by enabling a new consumer tax deduction on loan interest for U.S.-assembled vehicles that can boost sales and financing volumes, improving bonus depreciation rules for dealer expenses, and preserving pass-through tax strategies, albeit with some drawbacks for EV-focused dealers [1][2][3][4].
- The new tax deduction for up to $10,000 per year in auto loan interest, applicable from 2025 to 2028, creates an opportunity for many Americans to claim deductions on their car interest, which could potentially increase the demand for various types of vehicles, including electric vehicles, in business and finance.
- Dealers specializing in electric vehicles face obstacles with the repeal of federal electric vehicle tax credits from September 2025 and the imposition of new annual fees on electric vehicles and hybrids, which might affect the demand for electric vehicles in the long term, but could also encourage early adoption by consumers seeking to take advantage of the remaining credits.
