SR22

Author: Advocate Consulting Legal Group PLLC 24.03.2010

To Maximize Deductions The Taxpayer Must Place Aircraft in Service in 2011

The 2010 Tax Relief Act included both bonus depreciation and an enhanced expensing election available to new aircraft purchasers.  One hundred percent (100%) bonus depreciation is available for all new aircraft, including fractional interest, that are used primarily for business.  The enhanced expensing election of $500,000 applies to new or used aircraft placed in service by “qualifying small business” taxpayers.  A qualifying small business is one that invests less than $2,500,000 in total equipment purchases during the year.  Enhanced expensing applies to 2011 and to 2012 at lesser amounts ($125,000 deduction on up to $500,000). The 100% bonus depreciation generally applies only to 2011 but may be available for certain new aircraft purchased in 2011 under a binding agreement and delivered in 2012.  New aircraft purchased and delivered in 2012 will be eligible for 50% bonus depreciation.  Here is how the provisions are impacted on a 2011 or 2012 purchase of a Cirrus SR22

Here is how the income tax deductions are calculated for a $620,000 aircraft

The new law contains an ordering provision that provides that the expensing election be taken first.  Bonus depreciation is calculated by computing 100% of the balance of the basis remaining after the expensing election.  Regular depreciation is computed on a 5-year basis using the modified accelerated cost recovery method, generally 20% in the first year.  Aircraft ownership structuring is also impacted by unique FAA rules, sales tax issues, and liability concerns which must be blended with these new tax rules.  For further details see:  “Bonus Depreciation Extended and Increased to 100% for 2011 and Enhanced Expensing Through 2012”, and aircraft depreciation calculator at www.advocatetax.com.