It is hard to believe and I never thought I would see it... but the new tax plan allows for 100% immediate expensing for new and USED aircraft!
This is GOOD news for those who act quickly... and possibly bad news for those who delay.
We seem to be in a New Year's slumber, it's a new year, people are focused on getting back to work... the "mainstream" media certainly isn't talking about the huge tax cuts most Americans just received and the "conservative" media is probably hesitant to report what amounts to a huge tax windfall for the wealthy.
I repeat... THIS IS HUGE AND NO ONE IS TALKING ABOUT IT!
What is Bonus Depreciation?
Bonus depreciation is a method of accelerated depreciation also referred to as "immediate expensing" where a business can make a deduction of 100% of the value* of the asset purchased, in the year it was placed into service. (*must be business use and potentially limited by IRS Section 179)
What it isn't...
This IS NOT the 50% Bonus Depreciation that has been available for years on new aircraft.
This is a completely new bonus depreciation rule, and as long as the aircraft is used for business purposes and what ever qualifications the IRS requires are met, you'll be able to deduct 100% of the purchase price* of the aircraft in the year the aircraft is placed into service. This has never been available on used aircraft. (*potentially limited by Section 179)
Why it may be BAD news...
As I said above, we have not seen 100% immediate expensing on used aircraft. This will drive aircraft sales, of that there is no doubt. It will literally be a choice between writing a big check for X to the IRS or buy an airplane and expense it immediately, dramatically lowering the amount of tax liability.
The result of this unprecedented and bold move will very likely be that sales of used business aircraft will reach levels rarely seen in the past. This is real folks and if you wait it will probably cost you, and for the sanity of the team here at Jet Acq, please do not wait until October and call us wanting to close by year end. If you are going to make a move in 2018, it needs to be sooner rather than later.
If you choose to wait you should expect aircraft availability will be limited and I expect prices will go up. If you wait too late, you may not be able to get the aircraft you are purchasing scheduled for pre-purchase inspections at all, not to mention the load on the title companies and the FAA. Those who are trying to close in December are probably looking at some serious stress and frustration.
Why USED matters...
The reality is that new business aircraft are very expensive and a limited number of individuals and corporations can justify the expense. The classic 50% bonus depreciation has helped drive new aircraft sales for years. In fact the old tax plan actually hurt used aircraft values while helping new, as the tax savings became part of the "difference" between the cost of buying new over used.
In the used business aircraft market prices start just above what a luxury car can be purchased for, making aircraft purchases attractive to business owners who may not have considered a potential aircraft purchase before. The influx of new blood into business aviation will be good for the industry and good for aircraft values. In the past a used aircraft would be sold to buy a new aircraft for tax reasons, but the tax break only drove one side of the equation, now it will drive both sides, both buyers will be getting the same tax benefit!
The impact on business aircraft and general aviation is huge. Don't hesitate, it's time to make plans and take advantage of the greatest gift the government has ever given to aircraft purchasers!
If you enjoyed this article, please share it.
A note from Chip...
I am the airplane guy, not the tax guy. PLEASE verify everything I am saying with a Tax Professional. If you do not have a tax guy, we can recommend one. We will work with your CPA, CFO or Attorney to make sure they have the information needed to help you maximize the available tax benefits.
At Jet Acquisitions we do our very best to provide our clients and prospective clients with timely and accurate information, however we are not tax professionals and cannot give tax advice.
This legislation just passed and we do not have input from the IRS at this point, while we do not expect anything dramatic, they are the taxing authority. They have the final say in what deductions you will actually be able to take and what qualifications you will have to meet. We are especially curious what the limitations and caps will be, previously Section 179.