Tag: aircraft taxation

Year End 100% Aircraft Bonus Depreciation

Aircraft Bonus Depreciation
Aircraft bonus depreciation still in sight

From year-end 2011:  “As the holidays approach our thoughts become preoccupied with but one thing: how can I purchase an aircraft and write off 100% of the cost basis in the first year? Well, perhaps not for everyone, but here’s what you need to know: if you purchase an aircraft and place it in service by December 31, 2011 you will qualify for the 100% bonus provision provided you meet all of the other requirements. This is a considerable benefit under any circumstances.

If this is NOT possible, however, and you must place your aircraft in service next year, you are probably still better off than you would have been had you “only” been able to take the 50% bonus. This is because assets placed in service in the fourth quarter of the year do not receive the full first-year depreciation allowance. Your bonus allowance reverts back to 50% for assets placed in service in 2012. By waiting until early next year, you still receive this benefit, but are now able to take the full year MACRS depreciation allowance. In other words, unless the value of your depreciation allowance is considerably greater than it will be next year, you’re better off taking your time and making sure you have done your tax planning carefully, not only at the federal but also at the state – sales tax – level.”

Update 2012:  The good news:  100% bonus depreciation is still with us on qualified aircraft purchases through the end of this year.  What’s “qualified”?  There are several factors, including that you purchase a new (or substantially rebuilt) aircraft, and that you take delivery and place it in service before the end of the year.

The bad news:  This might not be around forever, which as bad news goes is pretty acceptable in my book.

Bonus Depreciation Extended

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.

NBAA’s Handy State Tax Guide

The National Business Avaition Association publishes a very handy “quick reference” tool to state laws concerning aircraft sales and use tax, aircraft registration, fuel tax and related tax issues. This service is free to NBAA members with usernames and passwords to www.nbaa.org. This service resembles, though certainly doesn’t replace, a similar compilation available through publisher Conklin & DeDecker.

Whatever resource you use, however, must be current as to recent tax law changes. Florida only recently, for example, created new provisions governing sales and use tax applied to aircraft returned here within 180 days of purchase. Contact a qualified aircraft tax advisor for details and the most recent updates. Also visit our website, at https://www.goodattorneysatlaw.com/aviation.html.