President Proposes BizAv Tax Hike
By J. Mac McClellan, Director of Publications, EAA 747337
September 13, 2011 –Less than a year since business aircraft, along with other capital assets, were granted accelerated tax depreciation to help spur the lagging economy, the Obama Administration has proposed stretching the tax depreciation period for business aircraft by seven years. The Administration refers to the tax treatment of airplanes used for business as a “loophole” and proposes the changes to raise revenue to help pay for the American Jobs Act that the president announced last week.
Last year Congress passed, and the president signed, a law creating accelerated tax depreciation so that businesses could deduct the cost of capital equipment - including aircraft - in the same year the equipment was put into service. If the Administration’s new proposal is passed by Congress, aircraft used for business must be depreciated for tax purposes over 12 years. Since 1986 the tax depreciation life of business aircraft has been five years, but several times during that period, including now, Congress has granted accelerated depreciation schedules to aid slumping manufacturing. But, the proposed change in the tax depreciation schedule would add seven years to the longstanding depreciation schedule.
Stretching the depreciation schedule has the effect of increasing the cost of capital equipment acquisitions. Longer tax recovery periods also dampen incentives to replace equipment more frequently. The general and business aviation industry has been in a serious slump since the fall of 2008 and recovery in new airplanes sales has been very uneven with only the largest cabin, longest range jets returning to near pre-recession sales levels.
The proposed change in tax treatment of aircraft used for business, if enacted, would not alter the tax status of airplanes purchased and put into service in this year under the accelerated depreciation schedule. Presumably aircraft put into service in 2012 would be eligible for the five-year depreciation schedule with the proposed change to 12 years taking effect after December 31, 2012.