aviation tax | Advocate Consulting Legal Group, PLLC

A New Era in Business Aviation: Highlights from the Tax Cuts and Jobs Act

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.

Tax Trap for 2011 – Failure to Elect Grouping of Aircraft Company and Operating Company

Second in a series of articles on “How to Survive an IRS Audit of your Aircraft”

There are many valid business reasons to separate aircraft ownership from the operating companies it serves. These often include liability protection, ownership differences, and managerial issues to name a few. Although it is often beneficial to segregate ownership for non-tax reasons, it is important to avoid inadvertently causing the aircraft entity to be treated on a “stand-alone” basis for passive activity income tax purposes.

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.

UNDERSTANDING AND PLANNING FOR TAX RISKS OF OVERLAPPING LOAN GUARANTIES

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.

FAA RULES ON RVSM OPERATIONS: IMPLICATIONS FOR MULTI-OPERATOR AIRCRAFT

On January 24, 2014, the FAA issued a new National Policy on operations in Reduced Vertical Separation Minimum (“RVSM”) airspace. (FAA Notice N8900.250 and Revised FAA Order 8900.1.) One significant topic addressed is that, for aircraft with multiple operators (e.g., multiple lessees of a single aircraft), each one operating in RVSM airspace must possess its own, distinct letter of authorization (“LOA”) issued by the FAA for such operations. The policy further provides for an expedited process to obtain additional LOAs after a single LOA has been issued,