The 2017 Tax Cuts and Jobs Act provides a wonderful opportunity for business aircraft purchasers of both new and pre-owned aircraft to take 100% bonus deprecation on the aircraft purchase price in the year of acquisition pursuant to Section 168(k), provided that the aircraft is placed in service for business use in that year. This purchase incentive, designed to spur economic activity in equipment sales, can serve as a valuable tool to free up capital and encourage business investment and activity.
After years of debate, tax reform has arrived. The late-year 2017 passage and signing of the Tax Cuts and Jobs Act (TCJA) has reshaped the business and individual tax landscape. The TCJA provides excellent tax opportunities for businesses of all sizes to invest in general aviation aircraft, but requires careful planning and review to ensure that deductions are preserved. Below you will find a few highlights of the new law, along with discussion points to consider with a trusted advisor.
Potential Cuts to Business Taxes May Make Deductions More Valuable This Year
One of the central promises of the new administration has been long-awaited tax reform. President Trump has promised imminent executive action outlining the tax reform priorities that he will pursue, and with a Republican Congress in place, some version of tax reform is likely either in 2017 or in early 2018. While it is difficult to “read tea leaves” there are some commonalities between the Congressional tax reform agenda and the campaign promises of the President that signal significant relevant changes to corporate and small business taxation.
When a financed aircraft is owned in a special-purpose company, which lacks assets other than the aircraft, it is typical and understandable for the financing bank to insist that, in order to extend this special-purpose company a loan to purchase the aircraft, that loan must be guarantied by another, more solvent person or company. In fact, banks will often seek multiple, overlapping guaranties—for example, from both spouses a couple, or from an individual and another company owned by that individual.
A federal excise tax of 7.5% (plus a small, per-head fee) applies to amounts paid for transportation by air if the trip begins and ends within the United States, or in Canada or Mexico within 225 miles of the US border. Because aircraft operations require specialized skill and knowledge, it is not uncommon for aircraft owners and lessees who operate aircraft to retain the services of experts to assist them in safely and appropriately using their aircraft.