Federal Income Tax Benefits Of Aircraft Ownership
What Are The Key Tax Provisions That Relate To Business Aircraft?The President recently signed into law the Small Business Jobs Act of 2010, which extends the "bonus depreciation" provisions under IRC ? 168, which allow the taxpayer to deduct up to 50% of the cost basis of plane in year it is placed in service. This legislation also modifies the separate "expensing" provision under IRC ? 179 that allows up to an additional $50,000.00 deduction for qualifying purchases. What remains of the plane's basis after one or both of these provisions are applied may then further be depreciated under the accelerated, five year, MACRS recovery period. Put together, the purchaser may be able to deduct the majority of the plane's purchase price in the first two years of ownership, depending on his overall tax picture.
What Can I Expect To Be Able To Deduct As A Result of My Aircraft Purchase?Take, for example, a fractional aircraft purchase costing $2M. One first applies Section 179, allowing $50,000.00 as an expense allowance in the year of purchase. From there apply the bonus depreciation provisions, which in this case provides an additional deduction of $975,000.00 (1/2 of the basis remaining after the expensing allowance was applied). What remains ($975,000.00, the other half), may then be depreciated under the MACRS schedule. For aircraft placed in service in the 1st quarter of next year (2011) this would allow an additional allowance of $195,000.00, for a total deduction in the first year of service of $1,220,000.00. The business expenses attributable to the operation of the aircraft could also be deductible.
What Are Some Of The Limitations Or Caveats On Depreciating Business Aircraft?o The expensing allowance, under the new law, phases out dollar for dollar for aircraft over $2M.
o Bonus depreciation is permitted only for new aircraft, whose "first use" is in the taxpayer's hands. Used or refurbished aircraft do not qualify. Fractional interests are considered "first used" by the taxpayer at the time of purchase.
o The purchaser must enter a written binding contract for his purchase and place a non-refundable deposit with the seller by the end of 2010. He would have to begin using the aircraft for business purposes by the end of 2011.
o Deductibility depends on your client using his aircraft predominantly for business purposes. Use of an aircraft for personal entertainment and non-entertainment use is the subject of additional tax planning.
o Depreciation deductions are "recaptured" when the aircraft is sold. This can be deferred for some time either by continued ownership or by exchanging the fractional interest for another at a later time.