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July 12, 2014
In general terms, bonus depreciation may allow aircraft owners to realize the depreciation benefits of an eligible asset more quickly. Aircraft owners are not entitled to more depreciation, but are allowed to obtain the benefits of depreciation more quickly. When available, bonus depreciation can be utilized by owners of many capital assets and is not an aviation specific benefit.
The Small Business Act of 2010 contained provisions that extended bonus depreciation through the end of 2010. Under the Act, 50 percent of the cost of bonus depreciation eligible property could be deducted in the year the property is acquired. The remaining 50 percent of the cost or “basis” remains eligible for depreciation in future years according to normal depreciation rules.
Congress also passed the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 – which allowed businesses 100 percent accelerated, or "bonus" depreciation of investments in capital assets, including new aircraft, through December 31, 2011, retroactive from September 8, 2010. The legislation also provided for a bonus depreciation allowance of 50 percent during 2012.
The American Taxpayer Relief Act of 2012, signed into law on January 2, 2013, further extended 50 percent bonus depreciation through the end of 2013. This meant that new business aircraft purchased in 2013 were eligible to qualify for 50 percent bonus depreciation. If there was a written binding contract in place to purchase the aircraft by December 31, 2013 and the aircraft qualified as "Certain Aircraft" or "Long Production Period" as defined in the Internal Revenue Code, the aircraft could be placed in service during 2014 and still qualify for 50 percent bonus depreciation.
On July 11, 2014 the U.S. House of Representatives passed H.R. 4718, a bill to renew bonus depreciation and make the provision permanent. This would allow businesses to write off 50 percent of a qualified investment's value in the year in which it was acquired. However, the Senate Finance Committee already approved a legislative package that included a two-year retroactive extension of bonus depreciation through 2015.
The House and Senate must reconcile these different approaches to bonus depreciation and other business tax incentives before any type of extension can move forward. NBAA supports the restoration of bonus depreciation and has joined more than 150 other associations in urging Congress to act on this matter. Learn more about efforts to renew bonus depreciation.
U.S. Tax Court Opinion on "Placed in Service" Dates
In an opinion, the U.S. Tax Court held that a new aircraft delivered in December 2003 was not “placed in service” for depreciation purposes until modifications were completed in 2004. The taxpayer lost its bonus depreciation deduction in 2003 and had to pay a 20% tax penalty. Based on testimony from the taxpayer, the court concluded that installation in 2004 of a conference table and video monitor in the aircraft was necessary for the aircraft to be fully ready to perform the specific function required by the taxpayer and thus be placed in service in 2004. This case may affect buyers of aircraft who have modifications to the aircraft performed in a subsequent year. Review the full opinion.
- Court Holds Aircraft Not “Placed in Service” Until Completion of Post-Purchase Modifications
- Accelerated Depreciation Extended for 2013 (January 7, 2012) by Richard C. Farley, Jr
- Aircraft Acquired in 2012 May be Eligible for 100% Bonus Depreciation (December 3, 2012) by Richard C. Farley, Jr
- Bonus Depreciation: New Revenue Procedure Expands Planning Opportunities (July 18, 2011) by Victor Charles Anvick, ATIS Group LLC
- Congress Approves Expanded Tax Benefits For Business Aircraft Purchase (December 17, 2010)
- Bonus Depreciation Reintroduced for New Aircraft Purchasers (September 2010) by Ed Kammerer, Hinckley Allen & Snyder LLP
- Bonus Depreciation: Deduction at the State Level (March 2004)
- Depreciating Corporate Aircraft (June 2001) by Troy A. Rolf, Galland, Kharasch, Greenberg, Fellman & Swirsky, P.C.