New Tax Law Benefits
The President signed “The American Taxpayer Relief Act of 2012” on January 2, 2013. It’s important to check with your tax counsel and advisor to determine how this new law will impact your situation. The comments below apply to the Federal Tax Law. Each State may NOT adopt the Federal Law. Check on your State Law. Consider the items below for discussion with your tax counsel.
The new tax law provides specific benefits to some aircraft owners as well as aircraft purchasers concerning depreciation and Section 179 expensing. The benefits provided have some limitations on the aircraft owners/purchasers as well as timing issues on the expenses and purchases. Check with your tax counsel before making your decision on any major aircraft modifications or purchases based upon the items discussed below.
The 50% bonus depreciation option applies only to NEW aircraft purchases OR the cost of product improvements to new or used aircraft. Major limitations are noted below.
- The new aircraft must be placed in service prior to December 31, 2013 OR have binding purchase agreements executed in 2008-2013 and the aircraft qualifies as “certain aircraft” or “long production period” as defined in the Internal Revenue Code, then the aircraft can be placed in service during 2014 and still qualify for 50-percent bonus depreciation.
- For commercial aircraft used in the business of transporting persons or property for hire; the aircraft must cost more than one million dollars and have a production period greater than one year.
- For non-commercial aircraft used for business; the aircraft must cost more than $200,000, have a production period greater than four months, and the purchase agreement must have a non-refundable deposit of ten percent of the aircraft cost or $100,000 whichever is less.
- Agricultural and firefighting aircraft operators should check IRS bulletins for other special rules that may apply.
- The product improvement cost subject to bonus depreciation can include both new and used equipment provided that at least 80% of the product improvement equipment cost is new.
New equipment purchases will allow a bonus depreciation of 50% of the new equipment cost to be taken in the year the equipment is placed in service. The 50% bonus depreciation claimed in the first year is in addition to the normal depreciation calculated on the balance (Purchase price plus sales tax less the bonus depreciation). The total depreciation claimed can never exceed the purchase price of the equipment plus the sales tax.