Depreciate Your Used Aircraft 100% in the First Year
Changes to the tax code in 2017 allow businesses to accelerate the book depreciation of their aircraft purchase to the first year.
This is what you need to know
WHAT CHANGED?
The passage of the 2017 “Tax Cuts and Jobs Act” changed the first-year depreciation limit from 50% to 100%
Previously, Bonus Depreciation exclusively applied to new aircraft, now it also applies to used aircraft
1031 Exchanges (A.K.A. Like-Kind) are no longer allowed for Personal Property
WHO CAN TAKE ADVANTAGE OF BONUS DEPRECIATION?
This is more complicated than one might think and there are a number of pitfalls that must be considered.
Bonus Depreciation is exclusively for business aircraft and for business use. That means that more than 50% of the aircraft’s usage falls under business-use (defining “business-use” requires a strict view of the tax code).
The aircraft must be eligible for the Modified Accelerated Cost Recovery System (MACRS). A major qualificant of which is that the aircraft cannot be predominately used outside of the United States.
The future use of the aircraft must continue to be predominately for business use, failure of this could result in the IRS recapturing the depreciation in later years.
Regardless of when a purchase order is signed, the aircraft must be placed into service before January 1, 2023. That may seem like a long time but growing manufacturer backlog could easily have delivery dates 4-5 years down the line (I’m looking at you, PC-24).
IS IT ENOUGH?
Ultimately, these types of regulatory incentives are aimed at providing a meaningful boost to the economy. So how has it done? As of posting, the aircraft sales market has made a huge resurgence with values slowly rising and sellers gaining the upper-hand as inventory levels fall across all aircraft types. Bonus Depreciation could surely be described as a factor in this type of growth, coupled with the overall economic success of the United States over the past few years.
I believe the greatest outcome of the Bonus Depreciation program is the number of first-time buyers that have entered the world of aircraft ownership. For many of our clients, Bonus Depreciation was not only a factor but the primary driver to purchase today. This program has allowed countless small businesses to enter private aviation because the economics are simply more attractive than ever before. As with any piece of legislation, I always caution my clients that these types of programs could be rolled-back, so these provisions may not last until 2023.
SPEAK TO AN EXPERT
We advise all of our clients to seek aviation-specific tax and legal support throughout their ownership cycle and when it comes to using Bonus Depreciation it is an absolute necessity. Your personal CPA may be the best around, but groups that specialize in aviation simply understand the pitfalls associated with these large write-offs. Flight Level Partners has built a trusted network of experts that we would happily refer to, without hesitation.
Cameron Tipton, ASA