Tax Reform 201: Aircraft Acquisition and the “Leasing Trap” in a World of 100% Bonus Depreciation

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.

BONUS DEPRECIATION AND ENHANCED §179 EXPENSING EXTENDED TO 2015 AND BEYOND

179 Expensing Election of $500,000; phase out starts when equipment purchases exceed $2,000,000.
50% Bonus depreciation for factory new equipment

In a welcome display of good governance, Congress this year has largely broken its recent routine of allowing important tax incentives to expire with the start of each new year, only to retroactively reinstate those provisions as year-end approaches—leaving taxpayers during the interim on tenterhooks, guessing what tax laws they will be subject to.

2013 “FISCAL CLIFF” DEAL EXTENDS BONUS DEPRECIATION & RETROACTIVELY ENHANCES EXPENSING ELECTION FOR 2012 AND INTO 2013

On January 2, 2013, Congress completed passage of a bill addressing, at least in part, the so-called “fiscal cliff” of impending tax changes slated to occur at the end of 2012. President Obama is expected to quickly sign the package into law. Of particular interest to those acquiring aircraft in 2013 or 2014, the law will extend the purchasing incentive of bonus depreciation, making it broadly available in 2013, and available to certain aircraft acquired in 2014 pursuant to contracts entered into this year.

IRS RULES ON DEPRECIATION FOR MIXED-USE CHARTER / PART 91 AIRCRAFT

For owners of business aircraft who find themselves flying fewer hours per year than their aircraft can reasonably support, an attractive option is often to contract with a Part 135 charter company to use the excess capacity of the aircraft to sell flights to the public. Such an arrangement can create a valuable revenue stream from charter customers, which often serves in addition to the owner’s primary reason for the aircraft—i.e., enhancement of the owner’s business through Part 91 flights to meet with customers,

BONUS DEPRECIATION & EXPENSING AVAILABLE FOR 2012 AIRCRAFT DELIVERIES

Economic Stimulus Incentives Apply to 2012 New Business Aircraft Deliveries

New aircraft purchases and new equipment purchases for used aircraft are subject to a special 50% bonus depreciation allowance in 2012. In certain cases, depending on the details of the contract through which the 2012 aircraft is acquired, the bonus depreciation may be enhanced to 100% of the aircraft or component cost. The additional first year depreciation deduction is allowable both for regular income tax purposes and alternative minimum tax purposes.