House and White House negotiators have agreed to two provisions of the Protecting Americans from Tax Hikes Act of 2015, which may provide an incentive for business aircraft owners. Under the act, which is expected to pass Congress and be signed by the President, “bonus deprecation” is extended and the “expensing” provisions of the Internal Revenue Code are made permanent.
The provision addressing the bonus depreciation rules of Section 168(k) were extended through 2019. This extension allows 50 percent (phased down as described below) depreciation in the first year that an owner places an aircraft (or other qualifying asset) in service. The 50 percent bonus applies to tax years 2015 through 2017. In 2018, the bonus is 40 percent. For 2019, the bonus is 30 percent. The “bonus” allowance is in addition to the regular deprecation allowance provided for in the code.
The Act also makes permanent the expensing provisions of Section 179 at the 2010 through 2014 levels. These extended provisions give aircraft owners the option to expense (and not depreciate over time) up to $500,000 of their capital expenditures with an income phase-out limit starting at $2 million. Both levels will be indexed annually for inflation, starting in 2016.
What This Means to You
By providing aircraft owners with the option to recover their capital expenditures over a shorter period, the after-tax economics of purchasing a new aircraft (or making major upgrades and overhauls to existing aircraft) are significant. If you are considering an upgrade to your aviation assets, the availability of these deprecation provisions should be factored into your decision.