The Wall Street Journal reports that both the House and Senate versions of the tax revision proposal includes plans to limit businesses' interest expense deductions. However, last-minute changes in those bills have excluded construction equipment dealers and ag equipment dealers from the broader proposed interest deduction changes.
But the exception swings two ways. At issue for the dealers is how much interest companies can deduct and when they can write off the full cost of newly acquired inventory.
Currently, construction equipment dealers often borrow money to buy equipment from manufacturers that they will then sell at their dealerships. Under the tax code now, dealers are allowed to deduct 100 percent of the interest they incur.
Many agriculture-equipment dealers are hoping to keep that exception in the final tax bill because they would be allowed to continue to deduct all the interest they paid on loans that cover the cost of their inventory.
But some construction-equipment dealers don’t want the special treatment because it comes with a string attached - they wouldn’t be allowed to benefit from a tax provision the House and Senate bills offer to other businesses: the immediate write-off of the cost of machinery they purchase. As the tax laws are written now, construction equipment dealers expense their interest over several years. This procedure works in their favor as they replace or expand their rental fleets, which are becoming increasingly important in the construction business.
So where does that leave the equipment dealers who sell both ag and construction iron?
Read the WSJ's Bulldozer Dealers to Congress: Don’t Tax Us Like Tractor Dealers for more (registration required).