Under a provision of President Bush’s economic stimulus package, purchasers of new aircraft can take a first-year depreciation deduction of 30 percent for the taxable year in which it is placed in service. H.R.3090, “The Job Creation and Worker Assistance Bill of 2002,” included a 30-percent bonus depreciation provision on the value of certain capital assets for 36 months. Useful lives will remain at five years for Part 91 operators and seven years for Part 135 operators. “The basic question that has been coming in is, ‘Is it on just new or also on used aircraft?’” said Greg Jackson, manager of tax issues for NBAA. “It is just for new aircraft. Think of it as the old investment tax credit.”
The purpose of the legislation, which was passed by the House of Representatives on March 7 and the Senate on March 8, is to generate capital spending, he said. “It’s a fairly good deal,” Jackson said. He explained that in the case of a $1 million asset, the owner takes 30 percent off the top–$300,000. Thus, depreciation would begin at $700,000.” According to Advocate Aircraft Taxation Co., depreciation for the year of acquisition and subsequent years would be in addition to the 30-percent bonus depreciation, and would be based on the remaining 70 percent of costs.
The bonus depreciation is generally available for new property bought by the taxpayer after Sept. 10, 2001, and before Sept. 11, 2004, provided there was no written binding contract for the purchase on Sept. 11, 2001. In addition, there is an expanded placed-in-service period for aircraft that are ordered before Sept. 11, 2004, and delivered before Jan. 1, 2006. The special bonus depreciation deduction will be allowed in computing minimum tax, and the effective dates of the new law are retroactive to all taxable years ending after September 10, last year.
Advocate Aircraft Taxation said the statute provides that additional capital expenditures incurred to recondition or rebuild acquired (or owned) property would satisfy the “original use” requirement. But the cost of reconditioned or rebuilt property acquired by the taxpayer would not satisfy the “original use” requirement. The company said taxpayers with acquisitions between last September 11 and December 31 may need to take immediate action. “The bill states that the bonus depreciation will apply unless the taxpayer elects out,” it noted. “Although Congress, or the Internal Revenue Service, may provide special relief procedures for affected taxpayers, there is no assurance this relief may be forthcoming, or what form it will take.”
It further advised that taxpayers who acquire new aircraft, or made acquisition of new equipment for their existing aircraft, should immediately consider delaying filing of their tax return and properly electing bonus depreciation; or, if they have already filed their tax return, file an amended tax return before the original due date for the purpose of making the special election or electing out of it. “For those considering the acquisition of new aircraft, it is essential that its original use commence with business use,” Advocate Aircraft Taxation said. “Although it is possible to convert a personal asset from personal use to business use and begin capturing depreciation and operating expense deductions, property that commences use as personal use will be treated as used property and not available for the 30-percent bonus depreciation.”