What the 2025 Federal Tax Law (OBBBA) Means for Auto Dealerships

On July 29, 2025, Congress passed the Opportunity for Business and Budget Balance Act (OBBBA), marking one of the most significant federal tax overhauls since the Tax Cuts and Jobs Act of 2017. While the bill introduces broad tax implications for businesses and individuals, several provisions have a direct and substantial impact on auto dealerships and their owners. Below, we’ve highlighted key components of the OBBBA that dealership owners should understand as they prepare for year-end planning and beyond. 

1. Bonus Depreciation Is Back—But with a Catch 

For dealerships, the headline change is the return of 100% bonus depreciation for eligible property placed in service after January 19, 2025. This reinstatement allows dealers to immediately write off the full cost of qualifying assets—such as equipment and certain improvements—rather than depreciating them over several years. 

However, if your dealership incurs floorplan interest expense and is subject to interest deduction limitations under §163(j), you may be prohibited from claiming bonus depreciation. This creates a critical planning intersection between financing decisions and tax strategy—dealers must evaluate how floorplan interest impacts their eligibility for bonus depreciation. 

2. More Favorable §163(j) Interest Limitation Calculations 

The OBBBA introduces a dealer-friendly change to the §163(j) interest expense limitation by allowing taxpayers to add back depreciation, depletion, and amortization (DDA) when calculating their adjusted taxable income. This essentially moves the calculation from EBIT to EBITDA, increasing the threshold for deducting interest and offering more flexibility to capital-intensive businesses like dealerships. 

This is especially important for dealers managing high levels of floorplan financing and investing in infrastructure or expansion. 

3. Alternative Fuel & EV Incentives Phased Out 

Auto dealerships have seen a surge in electric vehicle (EV) inventory over recent years, often supported by federal incentives. However, the OBBBA repeals multiple clean energy tax credits, including: 

• Credit for Commercial Clean Vehicles – Repealed for vehicles placed in service after September 30, 2025. 

• Credit for Alternative Fuel Vehicle Refueling Property (such as EV chargers) – Repealed for property placed in service after June 30, 2026. 

• Consumer EV Purchase Credits – No longer available for vehicles acquired after September 30, 2025. 

These changes may impact both sales strategy and customer demand. Dealers may want to consider inventory planning and sales push efforts ahead of the upcoming deadlines. 

4. Charitable Contributions Deduction Tightened for Corporations 

If your dealership entity regularly contributes to charitable causes, take note: starting in 2026, the new law limits corporate charitable contribution deductions. While the 10% of taxable income cap remains, the OBBBA imposes a 1% floor, meaning only donations above 1% of taxable income will be deductible. Unused amounts can still be carried forward for up to five years, but this change may affect philanthropic budgeting. 

5. Individual-Level Impacts for Dealership Owners 

For closely held dealership owners, there are a few notable provisions: 

• Section 199A (Qualified Business Income Deduction) is now permanent, preserving the 20% deduction on passthrough business income and effectively keeping the federal tax rate for owners of flow-through entities at 29.6%. 

• Gift and estate tax exemptions are increased to $15 million, permanently adjusted for inflation. Owners concerned about succession planning may benefit from reevaluating their estate plans under this expanded exemption. 

• Itemized deduction limitations tighten slightly for high earners—especially those in the 37% tax bracket—with a new cap of 35% on the benefit of such deductions. 

6. New Car Buyers Can Deduct Interest—With Limitations 

From 2025 through 2028, consumers can deduct interest on new car loans, up to $10,000, even without itemizing. However, eligibility is phased out at $100,000 for single filers and $200,000 for joint filers. The vehicle must be new and assembled in the U.S. 

This could influence purchase decisions, particularly among mid-income buyers, and may serve as a tool for sales professionals during the qualifying period. 

7. Overtime Pay Deductions—But Only Partially 

A new deduction has been created for overtime premiums paid to employees under the Fair Labor Standards Act (FLSA). However, only the premium portion (not the full wage) is deductible, and there are income-based caps: $12,500 for individuals, $25,000 for joint filers, with a phaseout starting at $150,000 individual income. 

While likely to have limited impact for many dealerships, this may offer marginal tax relief for certain staff compensation structures. 

What Dealerships Should Do Next 

The 2025 OBBBA presents new planning opportunities and potential pitfalls for auto dealerships. Whether it’s evaluating the interplay between floorplan interest and depreciation, optimizing charitable giving strategies, or adjusting compensation plans, proactive planning with your tax advisor is essential.

At Brady Martz, we specialize in supporting dealerships with industry-specific guidance and tax strategies designed to help you thrive through change. If you have questions or want to understand how these new provisions affect your dealership, reach out to your Brady Martz advisor today.