Tag: “corporate jet”

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.

The Jet Market: By The Numbers

The following September data comes from Chase Equipment Finance:

September Overview:
o Approaching crunch time for 2012 delivery outlook
• Order activity for the remainder of the year, particularly Q4, will be critical for determining whether next year’s deliveries will meet estimates
• Analysts forecast a 20% increase off the bottom in 2012, but this will require a pickup in demand that has been slow in coming and confined to the larger segment of the market
o Used market trends flipped in August
• Last month saw higher prices and higher inventories, the opposite of what has been observed for most of the year
• The increase in prices is a positive sign and the bump up of used inventories may be a reflection of broader economic weakness, but one data point is not enough to determine that the trends are changing
o Used jet inventories increased by 20 bps
• Inventories for sale as a percentage of the active fleet increased to 10.5% in August
• By category, Heavy (+0.3%), Medium (+0.1%) and Light (+0.2%) jet inventories were all up from the prior month
o Average asking price increased 0.2%
• Average price rose to $10.64MM in August, and is down 6.4% y/y
• Heavy jet prices decreased 0.3%, while Medium and Light jet prices increased 1.1% and 1.6%, respectively

On “Corporate Jet Loopholes” and other silly titles

Here we are again with the populist rant against the “corporate jet loophole”. Let’s start with some basics: the “loophole” refers to the bonus depreciation provisions that allows taxpayers to write off, in most cases, 100% of the purchase price of new, tangible personal property in the year in which the asset is placed in service.

Now, no one can argue that a 100% writeoff is a bad deal. In fact, it is nearly unprecedented in that under present law there is no ceiling on the amount that can be depreciated. So, as far as “corporate jets” are concerned, it is certaintly nice to have.

Here’s the problem, though, one of many: Exactly how many “corporate jets” are there relative to the amount of capital equipment that is placed in service every year? The bonus provisions are not a corporate jet anything – they will apply to most new purchases of business equipment, perhaps backhoes, vehicles, manufacturing equipment and so on – perhaps the very equipment needed to provide those “shovel ready” stimulus jobs which never showed up. The issue has been framed purely for political purposes: to create the idea that somewhere in the tax code lies a provision hand-crafted and narrowly tailored to give a huge writeoff to “corporate jet” purchasers at the expense of everyone else.

Second, the bonus provisions apply only where the property to be depreciated is “first used” by the taxpayer – i.e. new. There remains a large inventory of used aircraft of all sizes, jets and otherwise, and prices remain largely flat. In terms of the number of units sold the “corporate jet” loophole is smaller than many believe.

This all, of course, sets aside the real damage, which is to the image of general aviation in general, one of the few remaining bastions of American manufacturing. U.S. aircraft manufacturers, and the people that work for them, face more foreign competition than ever from sleek foreign competitors.

Perhaps it’s obvious to point out that this is not about fairness. Rather, it is about cynically pressing buttons designed to inflame and exaggerate classic us versus them cliches. No issue is one-sided, but a little truth wouldn’t hurt.