The Clock is Ticking for Bonus Depreciation for Aircraft

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May 17, 2013
Joseph Demko
SmithAmundsen Aerospace Alert

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Joe Demko, tax attorney, reminds aircraft operators that time is running out to take advantage of two bonus depreciation opportunities.

First, the American Taxpayer Relief Act of 2012 extended bonus depreciation for qualified property placed in service before January 1, 2014 (and January 1, 2015 in limited circumstances). Bonus depreciation is a valuable incentive to owners of business-use aircraft, but quick action is needed to take advantage of its benefits.

A taxpayer who purchases qualified property is allowed a 50% bonus depreciation in the first year the property is placed in service. Qualified property must be acquired and originally placed into service by the taxpayer before January 1, 2014 and includes aircraft operated under FAR Part 91 or Part 135. But if business use is less than 50%, bonus depreciation is not allowed and is subject to recapture later on.

Second, the deadlines for the acquisition and place into service dates for longer production period property (“LPPP”) and certain aircraft are further extended to January 1, 2015. Purchases of LPPP or certain aircraft must be evidenced by a written, binding contract before 2014 to take advantage of the January 1, 2015 deadline.

For example:

A charter aircraft operator desires to purchase new aircraft for $950,000. The aircraft is purchased and placed into service during 2013. The aircraft is eligible for 50% bonus depreciation for tax year 2013. However, if the transaction is completed after January 1, 2014, the bonus depreciation will be lost, unless the legislature takes further action.

IRS Circular 230 Notice

Internal Revenue Service regulations state that only a formal opinion that meets specific requirements can be used to avoid tax penalties. Any tax advice in this communication is not intended or written to be used, and cannot be used by a taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer, because it does not meet the requirements of a formal opinion.