The NBAA Convention Buzz on Bonus Depreciation
October 11, 2018
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The NBAA Annual Convention to be held October 16-18, 2018 in Orlando, Florida, will definitely have a buzz concerning 100% Bonus Depreciation. Immediately following Labor Day 2018, GKG Law’s phone has literally been ringing off the hook with clients calling about purchasing an aircraft in order to get the 100% write off. The stock market has done well this year, businesses have record earnings, and prospective aircraft owners are compelled by the opportunity for a very large write off on their 2018 tax return.
But, the big question is “Can I get the 100% deduction on my tax return?” The threshold consideration for all prospective purchasers is whether or not the aircraft is an “ordinary, necessary and reasonable” business tool for the business to acquire. While it is likely that anyone looking to acquire, for example, a $10,000,000 aircraft, can afford to purchase the aircraft, it is not clear that such aircraft will meet the ordinary, necessary reasonable tests set forth in the Internal Revenue Code and case law. Moreover, when a big write off such as bonus depreciation is placed on a tax return, it heightens the IRS scrutiny on that tax return, increasing the likelihood of a tax audit.
Moving past the ordinary, necessary and reasonable tests, the 100% write off is somewhat elusive, because the Jobs Act has a myriad of stop signs in the road, generally effective January 1, 2018. The stop signs include rules limiting business losses to the extent of business income, plus $500,000 for a joint tax return filer. Losses that are capped by such limit get carried forward into future tax years, subject to differing limitation rules. Other stop signs include the requirement to utilize an aircraft more than 50% of the time for qualified business use every year of the applicable depreciation schedule. There are also passive activity loss issues, with respect to the classification of the write-off as passive versus non-passive. And finally, there are issues relative to “disallowed uses” of the aircraft, primarily related to use of the aircraft for entertainment or commuting purposes.
These are complex issues requiring analysis by an experienced aviation tax advisor. To a greater extent, it generally requires a team effort, to include the tax return preparer and the company’s chief financial officer, if available. The good news is that while these stop signs may limit the magnitude of the write off in the year of acquisition of the aircraft, the write offs may nonetheless be available in an accelerated format over the next succeeding one or two years after acquisition.
Please contact Keith Swirsky at GKG Law if you’d like to discuss a prospective acquisition with bonus depreciation. Keith may be reached at 202-342-5251 or by email at kswirsky@gkglaw.com.