The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (H.R.4853), known as the “tax cut bill,” passed Congress on Dec. 16, 2010, and was signed into law (Public Law 111-312) by President Barack Obama on Dec. 17, 2010.
During the past few years, many aircraft owners and operators have deferred or delayed many aircraft and avionics equipment upgrades because of the concern for the economic future of their businesses.
While the challenging economic times are not over yet, the tax cut bill provides direct and immediate benefit to aircraft owners. Simply put, by leveraging these tax incentives, aircraft owners will be able to deduct 100 percent of the cost of their 2011 avionics upgrades from their corporate taxes instead of spreading it out over 5 years under a normal depreciation schedule. Congress has never allowed this before and it is likely a one- time- only opportunity, so the time to plan is now.
This is not formal/official tax advice and we urge you or your customers to consult with your tax counsel before making final purchasing decisions.
Here are the general guidelines for the Bonus Depreciation Incentive:
General rules for the period Sept. 9, 2010 through the end of 2011.
For new business equipment – including general aviation aircraft and component parts such as avionics —placed in service from Sept. 9, 2010, through the end of 2011, the bill provides for 100 percent bonus depreciation (i.e., an immediate write-off of 100 percent of the cost). As an exception, the bill precludes 100 percent bonus depreciation for any equipment acquired under a contract signed before the beginning of 2008.
General rules for 2012.
For new business equipment placed in service during 2012, the bill provides for 50 percent bonus depreciation (i.e., an immediate write-off of 50 percent of the cost). Again, as an exception, the bill precludes 50 percent bonus depreciation for any equipment acquired under a contract signed before the beginning of 2008.
Special rules for aircraft and certain other designed equipment.
For certain types of new business equipment, including non- commercial aircraft, designated in the bill, the bill provides for 100 percent bonus depreciation if the equipment is placed in service during 2012, provided there is a contract in place before the end of 2011 for the purchase of the equipment. In other words, for the designated types of equipment, the bill provides taxpayers with an extra year of 100 percent bonus depreciation if the taxpayer signs a purchase contract by the end of 2011.
Similarly, for the designated types of new business equipment, the bill provides for 50 percent bonus depreciation if the property is placed in service during 2013, provided there is a contract in place before the end of 2012 for the purchase of the equipment. In other words, for the designated types of property, the bill provides taxpayers with an extra year of 50 percent bonus depreciation if the taxpayer signs a purchase contract by the end of 2012.
This creates a great opportunity to inform your customers and evaluate their equipment needs and wants. This provides a great marketing message to your current and potential customers that you are ready to help them select the right equipment at the right cost to maximize their savings.