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To Maximize Deductions The Taxpayer Must Place Aircraft in Service in 2013

Current tax law provides for both bonus depreciation and an enhanced expensing election available to new aircraft purchasers.  Fifty percent (50%) bonus depreciation is available for all new aircraft, including fractional interest, that are used primarily for business.  The enhanced expensing election of $500,000 applies to new or used aircraft placed in service by “qualifying small business” taxpayers.  A qualifying small business is one that invests less than $2,000,000 in total equipment purchases during the year.  The 50% bonus depreciation generally applies only to 2013 but may be available for certain new aircraft purchased in 2013 under a binding agreement and delivered in 2014.  Here is how the provisions are impacted on a 2013 purchase of a new Cirrus SR22 Turbo.

 

Here is how the income tax deductions are calculated for a $710,000 aircraft:

 

Cirrus SR22 Turbo  
 

2013 Delivery

Cost

$710,000

Expensing Election

$500,000

Bonus Depreciation

$105,000

Regular Depreciation

$21,000

Total 1st year deductions

$626,000

Percent deductible

88%

 

The new law contains an ordering provision that provides that the expensing election be taken first.  Bonus depreciation is calculated by computing 50% of the balance of the basis remaining after the expensing election.  Regular depreciation is computed on a 5-year basis using the modified accelerated cost recovery method, generally 20% in the first year.  Aircraft ownership structuring is also impacted by unique FAA rules, sales tax issues, and liability concerns which must be blended with these new tax rules.  For further details see our Aircraft Depreciation calculator at http://109.73.238.163/~advoca53/depreciation/formDepSav.php.

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