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Understanding the 831(b) Election: A Smarter Approach to Dealer Reinsurance

As dealerships continue to evolve their F&I strategy, more principals and general managers are exploring dealer reinsurance not just as a profit tool but as a long-term wealth-building strategy. One of the most powerful tax advantages available within reinsurance is the 831(b) election, a provision in the U.S. tax code that allows qualifying insurance companies to be taxed only on their investment income, not the premiums they collect, up to a defined annual limit.

For the 2025 tax year, the IRS has set the 831(b) premium cap at $2.85 million. This means that if your dealer-owned reinsurance company collects less than that amount in premium and meets certain compliance standards, it may qualify for this election. The relevant IRS language reads:

“In the case of a qualifying insurance company, if the net written premiums (or, if greater, direct written premiums) for the taxable year do not exceed $2,850,000, the taxable income of the company shall be taxable only on income other than premiums.”
— IRC § 831(b)(2)

In simpler terms, if your reinsurance company qualifies, it does not pay federal income tax on the premiums it receives. It only pays tax on the investment returns from those funds. This allows the retained premiums to grow tax-deferred, providing dealers with a stronger opportunity to accumulate wealth and reinvest in their business on their own terms.

At Elite FI Partners, we specialize in helping dealers maximize the benefits of this structure through comprehensive automotive reinsurance solutions. Whether you are setting up a reinsurance company for the first time or looking to transition from a retro or legacy model, our process starts with education. We walk our dealer partners through reinsurance fundamentals, explain how the 831(b) election works, and deliver detailed pro forma analyses based on your actual contract volume and product mix. We ensure every dealer understands the differences between a CFC, NCFC, Super CFC, and other structures, and how each interacts with the 831(b) tax election.

But setup is only the beginning. One of the most important decisions a dealer makes is who to align with for formation, accounting, and long-term wealth management. That is why we connect our dealers with industry-leading partners, including YS Asset Management, GPW and Associates, and Asterix Global. These firms specialize in reinsurance formations, investment strategy, compliance, and strategic planning. Their expertise ensures that your reinsurance company is structured correctly, compliant with IRS guidelines, and built for lasting performance.

Reinsurance is not simply about tax deferral or fee transparency. It is about building something durable. That is why we pair every reinsurance program with real-world dealership support, including in-store training, menu process alignment, and monthly cession reviews that tie your reinsurance strategy directly to your F&I performance.

Always consult with a qualified tax advisor, legal counsel, or reinsurance specialist before forming a reinsurance company or electing 831(b) treatment. Each dealer’s financial situation and business structure is unique, and professional guidance is essential to ensure compliance and optimize long-term outcomes.

If you are a dealer who has outgrown the limits of your current profit-sharing program or you have heard of the 831(b) election but are not sure how it applies to you, let us start the conversation. We will walk you through the structure, provide side-by-side comparisons tied to your actual numbers, and align you with the right partners so you can build your reinsurance company with clarity and confidence.

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