We at Aerlex Law Group want to call attention to an issue in the tax reform legislation now pending before Congress that is critical to business aviation.
Both the House and Senate’s version of the tax reform bill provide for 100% expensing of new equipment, meaning that a business acquiring a newly manufactured aircraft can write off 100% of the purchase price against its taxable income in the year of acquisition. This is welcomed by the Original Equipment Manufacturers (OEMs) and clearly will help that segment of the market. However, the Senate version of the bill, unlike the House’s version, does not allow for 100% expensing for purchases of used equipment. This creates a significant problem, because under both versions of the bill as currently drafted, starting January 1st, a business may no longer defer the tax on the sale of its old aircraft through a Section 1031 like-kind exchange. This means that any business which is selling an old aircraft and buying a replacement aircraft may need to pay tax on the sale and effectively will have less cash to reinvest into its replacement aircraft.
Under the Senate’s version of the bill, the only way to lessen the negative financial impact resulting from the elimination of Section 1031 exchanges would be to purchase a newly manufactured aircraft in the same year as the sale and offset the expense relating to the purchase against the taxable gain arising from the sale. However, the majority of aircraft transactions involve purchases of a more efficient and newer, but not brand-new, aircraft. Since the Senate version of the bill does not include 100% expensing for used equipment, it is important that everyone who is involved in business aviation contact their members of Congress and urge them to either: (a) support the House’s version of the 100% expensing provision which includes used equipment or (b) support the less expensive option of simply keeping Section 1031 like-kind exchanges available for used equipment purchases.
The legislative process is moving at lightning speed, so please contact your Representatives and Senators immediately and express the importance of addressing this issue.
Contact information for all Representatives and Senators is available here.
Also, the National Business Aviation Association (NBAA) has set up an online page to contact Congress to support 100% expensing, which is available here.
If you have ever purchased or sold an aircraft used for business purposes, or ever intend to do so in the future, this issue is vitally important to YOU. Please contact your Congressional representatives and urge them to support 100% expensing for used aircraft and/or retain Section 1031 like-kind exchanges for used equipment purchases.