In the final weeks of 2017, the country watched the debate, negotiations, and final passage of the federal tax overhaul. One segment of the population that was closely watching included private and business aviation industry members, and they had a vested interest in the outcome. Some tax cut provisions, however, have created a stir among those in the general public. Here’s the story — and a rundown of what this tax reform means to jet owners and those who plan to purchase in the near future.
The federal tax overhaul
The headlines — like this one, for example, “Republican Tax Bill Gives Private Jet Owners a Tax Break” — may sound inflammatory: Such assertions can rile the public, especially in light of recent controversies over some Cabinet members’ use of private jets. True, the reforms do contain provisions that benefit jet owners, but many headlines are misleading — and not all parts of the reform are positive for those in the private and business jet industry.
- Exemption for private jet management — The provision giving rise to public disapproval is, in actuality, simply a clarification of an earlier law. Current tax laws require aircraft management companies to collect a 7.5% ticketing tax. However, it had been unclear if companies that staffed and maintained private jets were considered aircraft management companies. Then, in 2012, the IRS ruled these service companies were in fact considered aircraft management companies and therefore should be collecting the tax and should be liable for back taxes. After protests, however, the IRS stopped its efforts to collect taxes until further review. The tax reform bill makes that ruling formal: Aircraft management companies are not responsible for paying the 7.5% per-ticket airline tax.
- Depreciation benefits — If you plan to purchase a new business jet in the near future, this one’s for you. You will get to depreciate 100% of the aircraft’s value during the first year. No, that’s not a typo. Under the act, bonus depreciation applies to both new and pre-owned aircraft purchased between Sept. 27, 2017, and Jan. 1, 2023. This is great news for business aviation industry members, and the National Business Aviation Association (NBAA) predicts it will lead to more jet sales and open new markets to the benefits of business aviation.
- Like-kind exchange elimination — The provision that allows businesses to defer taxes on newly manufactured business property purchased to replace older equipment is repealed in the tax overhaul. Now, business property no longer includes aircraft used for business purposes. This is not good news for the industry overall, but the depreciation benefits in the bill will largely offset lost like-kind exchange benefits.
Those are just a few of the main provisions affecting private and business aviation industry insiders. Although the loss of the like-kind exchange may hurt some corporate jet owners wishing to upgrade their aircraft, the ability to expense 100% of your new jet within the first year makes now a great time to purchase a new or pre-owned aircraft. But buyer beware: With these new legal changes, it’s important to seek advice from an expert partner so you can make the most of your purchase under the act.
Considering acquiring a business jet? Here’s what you need to know
- 100% depreciation — The new tax plan allows owners to write off 100% of the cost of their business jets — including pre-owned jets — for purchases made after Sept. 27, 2017. Bonus depreciation will end Jan. 1, 2023.
- Lower corporate tax rates — With less to pay in taxes under the new plan, companies whose corporate leaders have never owned aircraft may consider investing in business jets.
- Reduced inventory — As more buyers enter the market, pre-owned inventories may become sparse.
- Higher jet prices — Fewer pre-owned jets for sale and long wait times for new jet deliveries may drive prices up.
If you’re ready to begin your search, the best time is now. How would you like to fly?