New Aircraft Buyers Benefit from Latest Extension of 50% Bonus Depreciation — Originally published in BusinessAir Magazine, January 2013, Volume 23, No. 1.
In early January, the United States Congress passed the American Taxpayer Relief Act of 2012 (the “Taxpayer Relief Act”). The legislation was intended to avert the socalled “Fiscal Cliff” and was quickly signed into law by President Obama.
The Taxpayer Relief Act includes a number of provisions that modify existing U.S. tax law, but potential aircraft buyers will be particularly interested in the amended Section 168(k)(2) of the Internal Revenue Code (“IRC”), which extends 50% bonus depreciation for aircraft purchased and delivered through the end of 2013 and, in certain circumstances, aircraft can be placed into service in 2014 and still qualify.
Aircraft buyers who purchase new business aircraft before January 1, 2014 will be eligible to qualify for 50% bonus depreciation if their aircraft meets the definition of “qualified property.” “Qualified property” includes property which: (1) has a recovery period of 20 years or less; (2) is acquired by the taxpayer at any time after December 31, 2007 and before January 1, 2014 pursuant to a binding written contract entered into after December 31, 2007 and before January 1, 2014; and (3) is placed in service by the taxpayer before January 1, 2014. There is an extended “placed in service” date through the end of 2014 for “certain aircraft” and “transportation property.” To qualify as “certain aircraft,” the aircraft must cost more than $200,000, have a production period in excess of four months and the purchaser is required to make nonrefundable deposit of the lesser of either 10 percent of the total cost or $100,000. Virtually all business jets and corporate aircraft will satisfy those criteria. “Transportation property” refers to aircraft used predominantly in charter operations.
“Bonus depreciation” allows a taxpayer to depreciate an asset on a faster schedule than would otherwise be permitted by law. Bonus depreciation is offered in addition to standard first-year depreciation and is taken in the first year that the depreciable asset is placed in service. It is important to remember that bonus depreciation applies only to new equipment; used aircraft do not qualify. The taxpayer must also be the first owner of record. 50% is the highest rate of bonus depreciation currently available under law; 100% bonus depreciation ended in all but a few circumstances in 2011 and has now completely expired.
Senior Transactional Counsel
Aerlex Law Group
Santa Monica, California