4th quarter aircraft acquisition no longer impacted
October 4, 2020
Modified accelerated cost recovery system (MACRS) is the tax depreciation method that allows taxpayer to depreciate equipment on an accelerated basis. In the past, if a business aircraft is acquired in the fouth quarter of a tax year, the ensuing depreciation deductions will be reduced, as compared to a purchase made earlier in the year. However, with the changes in the tax law in 2017, 100% bonus depreciation is allowed. This, therfore, eliminated the limitation of depreciation deductions for late year acquisitions. As such, taxpayers can acquire a business aircraft, place it in service by December 31, 2020, and realize the full 100% bonus depreciation for the tax year 2020.
Bonus depreciation has been a major consideration for many taxpayers, as it reduces the after tax cost of an aircraft acquisition by about 40%, which is the approximate marginal income tax rate for indivdiual taxpayers. For example, 100% depreciation of a $5M business aircraft can result in a $2M income tax reduction for the purchaser, making the after-tax cost of the acquisiton $3M.
The business aviation market has experienced a rebound in the past few months from the economic slowdown due to the pandemic. One main reason for this rebound is that many businesses are recognizing the benefits of operating a business aircraft, such as the safe travel enviroment for the health of employees, operation efficiencies compared to travelling by commercial airline, in addition to the potential for significant income tax benefits.
We have assisted many business owners to acquire their first business aircraft in the past few months, This trend is likely to continue through the rest of this year.