The recent changes to the tax code are giving business executives a new perk: the opportunity to deduct the entirety of a corporate-jet purchase.
President Trump signed more than 100 changes to the U.S. tax code into law at the end of last year. Among them: The price of a new or used airplane purchased by a company can be a 100% write-off against its earnings.
That is a major change. Before, buyers of new planes could generally deduct at least 50% of the cost of an aircraft in the first year. Buyers of used airplanes had to take those deductions more slowly.
Marcus Adolfsson, chief executive of online technology publisher Mobile Nations, bought a used Embraer Phenom 100 for just under $2 million at the end of December, right as the new tax law was going into effect. The rule allowing owners to deduct 100% on used equipment was retroactive to late September.
“The timing was impeccable,” he said of the full deduction he took for 2017.
Mr. Adolfsson, a CEO and licensed pilot in St. Petersburg, Fla., has used his jet to skip the hassle of commercial flights, flying to New York to meet with advertising partners and taking jaunts to Miami and Winnipeg to visit his remote employees. He lovingly compares the plane to a minivan: less sexy than some smaller planes, but a comfortable time saver.
“It’s kind of my office on the road,” he said, adding that he can lease it out for $1,300 an hour when he isn’t using it.
Companies are launching new programs this year to help owners further defray costs. In August, Jet It started offering a timeshare model to plane ownership, pooling people whose net worth might not have been high enough to make ownership seem realistic in the past.
Demand for used jets—especially aircraft priced under $7 million—has taken off in recent months as the tax change draws new, young and previously reluctant buyers off the sidelines, according to people who help consumers purchase and maintain planes.
George Rice, an accountant in Costa Mesa, Calif., said he received many calls from would-be plane buyers, and cautioned them that there were a lot of strings attached. The costs, including the expense to operate the plane—jet fuel, maintenance, spare parts and hiring pilots—have to be reasonable for the company’s size, and the plane has to be used for business, he said.
Mr. Rice estimates roughly half of prospective buyers who want to take the full write-off can do so under IRS rules.
The race is on to get plane deals wrapped before the end of the year in order to get the tax write-off for 2018, though the break doesn’t expire for several years.
“It’s like a frenzy out there,” said Bill Papariella, chief executive of Jet Edge International, which helps clients buy and manage planes. He scours the international market for used jets and said it can take 90 to 150 days to find one in decent condition.
Mr. Adolfsson said he gets emails and letters roughly twice a week asking whether he would consider selling. He estimates the value of his jet has appreciated by $300,000 in the past eight months, but he isn’t ready to sell. He took the 100% write-off through his company in 2017, but would have to repay virtually all of that if he sold.
The 100% write-off rule isn’t exactly free money because of that stipulation, said attorney Suzanne Meiners-Levy, who runs a Florida-based boutique tax law firm that helps businesses—mostly closely held ones—buy planes. Her firm has had a 30% increase in new clients so far this year, and she estimates that four out of five people mention the tax law.
Ms. Meiners-Levy frequently has to temper the expectations of overexcited buyers. Many are young people who “care a lot about the Wi-Fi in their airplane,” she said, adding that she sometimes hears, “I want a Gulfstream.”
The write-off does allow some buyers to splurge on bigger, faster jets that cost between $7 million and $10 million that they otherwise might not afford, Ms. Meiners-Levy said.
Jessica Mah, head of San Francisco accounting-software firm inDinero Inc., has been testing out potential planes in anticipation of buying next year. She has a budget of as much as $10 million, assuming she can get the 100% deduction.
“It goes from being completely unaffordable to being like, ‘Oh my God, not only is this not unaffordable but it’s kind of a no-brainer,’ ” she said.
Don Catalano, president of iOptimize Realty in Commack, N.Y., is planning to purchase a new HondaJet Elite, a six-seater than can travel twice as far as his company’s current plane, a turboprop purchased in 2002. He said having a company plane has been critical to signing real-estate deals in off-the-beaten-path locations in Ohio and New Hampshire where commercial flights don’t go and runways are tiny.
Armed with a budget of between $4 million and $6 million, Mr. Catalano said he wouldn’t have even considered a new plane if not for the change in tax law.
“Would we have wanted it? Yes. Would we have done it? No.”
Author: Rachel Feintzeig – Sept. 12, 2018
Source: Wall Street Journal