April 25, 2008
What’s at Issue
Congress recently passed, and the President signed into law, the Economic Stimulus Act of 2008 (PL 110-185). Included in this legislation is a special tax provision allowing for additional depreciation on eligible purchases of property. New aircraft acquisitions may be eligible for a tax depreciation benefit under this law.
Why It’s Important
The $150 billion economic stimulus package includes enhanced “bonus depreciation” benefits to assist general aviation and other industries. For qualified purchases, this legislation provides a 50% depreciation bonus for the first year the property is placed in service.
Major Provisions
Section 103 “Special Allowances for Certain Property Acquired During 2008,” requires that the property purchase must occur after December 31, 2007, and before January 1, 2009. Furthermore, only that property for which “original use” commences on or after January 1, 2009, is eligible for the first-year depreciation bonus.
Generally, tangible property with a recovery period not exceeding 20 years, such as aircraft, would be eligible for bonus depreciation. Bonus depreciation accelerates the depreciation of the asset, pushing much of the depreciation to the early years of asset ownership, which effectively reduces the company’s tax liability. The accelerated depreciation would be 50 percent of the cost of the asset in 2008 and 25 percent in each of the first two years. Bonus depreciation applies to factory new and some demonstration aircraft only.
The IRS explained in a press release that it will issue guidance for businesses on how the special 50 percent depreciation allowance that was included in the Economic Stimulus Act of 2008 can be used to make capital investments this year. Until the guidance is issued, businesses should review the regulations previously issued regarding bonus depreciation. A detailed description of the business provisions contained in the Economic Stimulus Act of 2008 is available in IRS Publication 553, Highlights of 2007 Tax Changes.
Businesses and tax professionals may e-mail the IRS at Notice.Comments@irscounsel.treas.gov regarding issues related to the business provisions of the Economic Stimulus Act of 2008 that they would like addressed in the upcoming guidance. Include “IR-2008-58” in the subject line of the e-mail.
NATA Position
The association is pleased that Congress has provided this economic incentive to aviation businesses. Because determination of eligibility can be complex, all operators wishing to take this deduction must carefully review both the Act provision authorizing the depreciation bonus and the technical explanation materials provided by Congress and consult with an attorney, tax expert or accountant as necessary.
Staff Contact:
Kristen Moore
Director, Legislative Affairs
NATA
kmoore@nata.aero