Aircraft Sales Insights

A Service of Dallas Jet International

Recent Changes to Tax Incentives for Trading Up or Upgrading Your Aircraft

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If you have been considering selling your current plane and upgrading your aircraft to a newer or larger model, recent changes to the tax law may create an ideal opportunity to “tip the scales” toward making an aircraft purchase a smart business decision.

Recent changes make it an ideal time to consider upgrading your aircraft.

Owners of aircraft such as this 1994 Gulfstream IV SP may find tax laws favorable for an upgrade this year.

The first of several “fiscal cliffs” have been successfully (more or less) navigated by congress.

Surprisingly, legislators tossed a couple of “carrots” to private aviation. What this means is that tax incentives have been granted for new aircraft purchases and upgrades to current aircraft.

Also surprisingly, bonus depreciation survived, and the 50% bonus was extended for 2013. ( Bonus was 50% in 2012 and 100% in 2011) The Section 179 Expensing Election was allowed to remain, and surprisingly was increased retroactively for 2012, and 2013 as well to $500,000.

The “fiscal cliff” act that was signed into law last week will extend 50-percent bonus depreciation through the end of this year for buyers of new business aircraft, the National Business Aviation Association said. “Accelerated depreciation has consistently proven to stimulate sales in difficult economic conditions,” said NBAA President Ed Bolen. “Given the current marketing environment, we view the continuation of accelerated depreciation as an effective sales incentive.” The provision doesn’t provide any extra depreciation for aircraft owners, but allows them to capitalize on the tax benefits more quickly by writing off 50 percent of the cost of the airplane in the first year of ownership.

Under the provisions of the new law, formally known as the 2012 American Taxpayer Relief Act, certain aircraft that are contracted for but not delivered by the end of this year still may qualify for the 50 percent bonus in 2013, as long as the aircraft is placed into service during 2014. As recently as 2011, the law allowed for 100 percent depreciation in the first year of ownership, but that option was not extended into 2012.

Mary Grady, Contributing Editor, AVWeb

Bonus Depreciation

Although the 50% depreciation can only be used for new equipment – that does NOT apply only to aircraft purchases.  It may also include the installation cost of new equipment upgrades.

The cost of installation, inspection, certification, etc. may be used in the cost eligible for bonus depreciation.  If the refurbished equipment includes new and used components, it still may be subject to bonus depreciation if less than twenty percent of the cost is for used components.

When you acquire an aircraft through DJI, we have developed a network of legal and accounting professionals that will take advantage of every option available that pertains to your specific situation.

Section 179 Expense

In addition to the bonus depreciation, you may be able to expense both new and used business property that was purchased and “placed in service” in 2012 or 2013.  This can be a benefit to those small businesses which have investments less than $2,500,000 during the year.  You can “write off” up to $500,000 of equipment as long as this amount does not exceed your income.

The Bottom Line for Upgrading Your Aircraft

As above, when you acquire an aircraft through DJI, our network of legal and accounting professionals will explain every option available that pertains to your specific situation and how we will use each.

For more specific guidance concerning aircraft purchase or upgrade, please give us a call. We look forward to working with you

A Footnote:

Aircraft acquisition can be an effective business tool, but the tax benefits must be carefully planned with appropriate tax professionals; then the rules must be strenuously followed and documented.