President Obama last week signed the Small Business Jobs Act of 2010 into law, extending two key aircraft-friendly tax provisions for another year. This legislation extends the “bonus depreciation” provisions that have been in place for some time that allow the taxpayer to deduct up to 50% of the purchase price of the plane in that year. This legislation will also modify the separate “expensing” provision that allows up to an additional $50,000.00 deduction. What remains of the plane’s basis is then further depreciated under the accelerated, five year, MACRS recovery period. Put together, these provisions allow an aircraft purchaser (including fractional interest purchasers) to deduct the majority of the purchase price of within the first two years.
The taxpayer must qualify for these benefits, and there are some limitations:
- These provisions apply only to noncommercial aircraft predominantly used in a trade or business. Personal use is accounted for separately and should be undertaken with professional tax advice.
- The expensing allowance, under the new law, phases out dollar for dollar for aircraft over $2M.
- Bonus depreciation is permitted only for new aircraft, whose “first use” is in the taxpayer’s hands. Used or refurbished aircraft do not qualify. Fractional interests are considered “first used” by the taxpayer at the time of his purchase.
- You must enter a written binding contract for his purchase of the plane and place a non-refundable deposit with the seller by the end of this year. You would have to begin using the aircraft by the end of next year.
- Depreciation deductions are “recaptured” when the aircraft is sold. This can be deferred for some time either by continued ownership or by exchanging the fractional interest for another at a later time. The real tax savings is the time value of the money not paid in taxes during this period.
Ari Good, Esq.