Bonus Depreciation 2014

  • Dec 19, 2014 2:39pm GMT
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The United States Congress has passed legislation that retroactively renews 55 temporary tax breaks, including bonus depreciation for aircraft purchases.

Late Tuesday night, the Senate passed the Tax Increase Prevention Act of 2014 (the “TIP Act”) by a vote of 76-to-16 and sent the legislation to President Barack Obama, who has announced his intention to sign the bill into law. The House of Representatives had already passed the bill on December 3rd by a vote of 378-to-46.

The bill renews retroactively, back to January 1, 2014, a package of tax breaks, most of which had either expired at the end of 2013 or during 2014 and have been in limbo ever since. However, the legislation has no impact on the 2015 tax year.

Aerlex Tax Services Chief Executive Officer Vicky Boladian said: “It’s good that Congress has finally taken action, but in reality, this package of tax incentives actually lasts just two weeks. The legislation accomplishes nothing for 2015. When the new Congress is seated in January, it needs to act much earlier to provide taxpayers, and aircraft buyers specifically, with greater clarity and certainty as to what the tax treatment will be on aircraft purchases in the future.”

Thanks to the retroactivity provision, aircraft buyers who entered into binding purchase agreements anytime during the 2014 calendar year can still benefit from the bill.

The TIP Act extends the 50% bonus depreciation provisions to property acquired and placed in service during the 2014 calendar year. Certain property is allowed an extended placed in service date through the end of 2015.

Aircraft purchasers who have already entered into a binding purchase agreement prior to December 31, 2014 and potential aircraft purchasers who intend to do so over the next two weeks would be eligible to qualify for 50% bonus depreciation if the aircraft meets the definition of “qualified property.” “Qualified property” includes property which: (1) has a recovery period of 20 years or less; (2) the original use commences with the taxpayer after December 31, 2007; (3) is acquired by the taxpayer after December 31, 2007, and before January 1, 2015, but only if no written binding contract for the acquisition was in effect before January 1, 2008; (4) is acquired by the taxpayer pursuant to a written binding contract which was entered into after December 31, 2007, and before January 1, 2015; and (5) is placed in service by the taxpayer before January 1, 2015. There is an extended “placed in service” date through the end of 2015 for “certain aircraft” and “transportation property.”

In order to qualify as “certain aircraft,” the aircraft should cost more than $200,000, have a production period in excess of four months and the purchaser is required to make a nonrefundable deposit of the lesser of 10% of the cost of the aircraft or $100,000. “Certain aircraft” includes virtually all business jets and corporate aircraft. However, it does not include “transportation property” which is customarily referred to aircraft used predominantly in charter operations. If the aircraft being purchased meets the criteria for “certain aircraft,” the aircraft can be delivered before December 31, 2015 and still qualify for 50% bonus depreciation.

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