Tax Break Signed Into Law

Posted on: Thursday, September 30 | Under: News/Events

'Aircraft Tax Break Signed Into Law'

President Barack Obama signed the Small Business Jobs Act H.R. 5297 into Law.  Companies considering the purchase of new or pre-owned aircraft used for business may be able to move forward on those investments now and take advantage of bonus depreciation to help off-set the cost. Depending on whether the aircraft is used in commercial or non-commercial operations, bonus depreciation will be available through the end of 2010 or the end of 2011.

The enhanced deductions apply to both new and used aircraft and components.  Bonus depreciation applies only to new aircraft, or new components.

Enhanced Expensing For New and Used Aircraft Purchases and Improvements

The Small Business Jobs Act retroactively expands the expensing election under Section 179 for all of 2010 and 2011.  Prior law provided for a maximum expensing election of capital expenditures of $250,000 for qualified small businesses.  Qualified small businesses were defined as those who invest less than $1,050,000 in capital items during the year.  Under the new law the expensing doubles from $250,000 to $500,000.  In addition, qualifying small businesses includes all businesses that invest less than $2,500,000 during the year.  The present law limitations on the availability of the Section 179 deduction remain.  These most notably include a limitation of use of the deduction to taxable income, a requirement that the property be used primarily for qualified business, and certain restrictions on related party leasing.

Bonus Depreciation Returns For 2010, and in Certain Cases 2011

The Act extends 50% bonus depreciation for new equipment purchases to 2010.  The extension is retroactive, and will therefore apply to all qualifying 2010 purchases.  Bonus depreciation applies to new parts, components, avionics and the like, and new aircraft without regard to cost.

Aircraft delivered in 2011 may also qualify if they meet certain production-period requirements and were contracted for after 2007 but before 2011.  For non-commercial aircraft, the law requires a minimum of a 10% or $100,000 deposit (whichever is lesser), as well as an estimated production period exceeding four months, and a cost in excess of $200,000.

MACRS Depreciation Follows Expensing and Bonus

The ordering rules under the new law remain the same as existing law.  Expensing is computed initially, followed by bonus depreciation, and then depreciation under the MACRS rules.  Non-commercial aircraft are generally depreciated over a five-year life, while commercial operators recover depreciation over a seven-year life; in either case double declining balance depreciation is used

For the full text of the legislation, see H.R. 5297: http://www.rules.house.gov/111/LegText/111_hr5297_snamnd.pdf