bonus depreciation - someone please explain

[GeorgePerry]

I'm not an accountant or CPA, so can someone please explain what exactly bonus depreciation is?   What are the advantages to a business that purchases an aircraft in terms of bonus depreciation?  Also would there be any monetary or tax advantages to forming an LLC to purchase the airplane in terms of the depreciation bonus?

[IFlyMooney]

"Bonus Depreciation" is a deduction for capital purchases that is beyond the normally allowed amount. 
For example, if you purchase an airplane for business use for $100,000.00, normal depreciation would be $ 20,000.00 assuming a five year life and straight line depreciation and a purchase date of January 1.  With bouus depreciation of 50%, the deduction would be $60,000.00.  This is 1/2 of the 100,000.00 plus another 10,000 of regular depreciation (50,000 / 5 years).

There is no deduction advantage of putting your airplane in a LLC or corporation.  The advantage of putting your airplane in another entity is that it removes the airplane from your personal return, which reduces the audit risk.  It also might provide some protection from liability, but I would check with a lawyer about that.

Hope this helps and is clear.

[carusoam]

Overall, It seems like there are great business incentives to own an aircraft.

This makes sense if you have a business that makes money, pays taxes, and requires travel.

As far as personal ownership, I bought my (used) aircraft with after-tax money and paid state sales tax on it.  Could I have done better?

- a -

[Jeff_S]

And in case Kevin's explanation wasn't fully clear, the effect of bonus depreciation is that it's a direct write-off against current year revenues, so it lowers business taxes. If you can legitimately use your airplane for business purposes, this can be very important.

Say the corporate tax is 35% of revenue (I'm not sure if that's actually correct...it may be close, but I use it for illustration): if your net business income is $200,000 then you would pay $70K of that in taxes. But with bonus depreciation, you may be able to deduct an additional $100K directly out of your net income, reducing it to $100,000 and therefore getting only a $35K tax bill.

So by accelerating the depreciation of the airplane you have saved $35K in one year. When you're talking about numbers associated with jet-props or corporate jets, the savings can be significant.

[DaV8or]

Quote: Jeff_S

 If you can legitimately use your airplane for business purposes, this can be very important.

[DaV8or]

Quote: carusoam

As far as personal ownership, I bought my (used) aircraft with after-tax money and paid state sales tax on it.  Could I have done better?

[piperpainter]

What nobody ever mentions is that the depreciation you take on the plane (whether regular or bonus; ie accelerated) lowers the "basis" of your cost in the plane. Then when you eventually sell the plane, any amount you you get for it over the "basis" must be reported as a gain, and taxes paid on it. If you are buying a new plane and the value of the plane drops as much as the drop in your basis, you come out even. But if your basis goes down to $100,000 and you sell it for $500,000, the tax on that $400,000 depreciation has to be "paid back".  This does not take into consideration the value of the use of that money over time, nor the tax rates that apply at the front end and back end of the deal.

My point is that this accelerated depreciation tax money is not just "free money", and one would be smart to ask their tax guru about the effect it will have on them.

Don

[DonMuncy]

Sorry about the above posting under piperpainter's name. I did not properly check to make sure I was logged in under my name.

Don

[N513ZM]

Quote: DonMuncy

Sorry about the above posting under piperpainter's name. I did not properly check to make sure I was logged in under my name.

Don

[Jeff_S]

Quote: piperpainter

What nobody ever mentions is that the depreciation you take on the plane (whether regular or bonus; ie accelerated) lowers the "basis" of your cost in the plane. Then when you eventually sell the plane, any amount you you get for it over the "basis" must be reported as a gain, and taxes paid on it. If you are buying a new plane and the value of the plane drops as much as the drop in your basis, you come out even. But if your basis goes down to $100,000 and you sell it for $500,000, the tax on that $400,000 depreciation has to be "paid back".  This does not take into consideration the value of the use of that money over time, nor the tax rates that apply at the front end and back end of the deal.

My point is that this accelerated depreciation tax money is not just "free money", and one would be smart to ask their tax guru about the effect it will have on them.

Don

[DonMuncy]

Although I am a lawyer, I am not a tax lawyer, so my knowlege is a little spotty. But I thought there was a special rule that allowed one to roll over the proceeds on a home, but I was not aware of one that would allow it for an airplane. Surely somone on this list has the real answer.

Don

[legallegend]

Quote: Jeff_S

 

[KLRDMD]

Quote: carusoam

As far as personal ownership, I bought my (used) aircraft with after-tax money and paid state sales tax on it.  Could I have done better?

[carusoam]

Ken,

Great advice.  Other than the sales tax, the continued ownership does not have any use tax or state registration associated with it.  Could be worse, i guess...no board of equilization.

-a-

 

[iowaboy]

I'm assuming the depreciation only works if you business buys the plane, not if you buy the plane and put it in its own LLC, correct?

Next question if you use your plane for busness travel ie its makes more sense time wise to fly than drive, can you also use the same plane for personal use?  Is there a percentage buisness verses personal allowed or what?

Also I was told a person flying for there business can write off the cost of getting a instrument rateing, is that true?

[74657]

Quote: iowaboy

I'm assuming the depreciation only works if you business buys the plane, not if you buy the plane and put it in its own LLC, correct?

Next question if you use your plane for busness travel ie its makes more sense time wise to fly than drive, can you also use the same plane for personal use?  Is there a percentage buisness verses personal allowed or what?

Also I was told a person flying for there business can write off the cost of getting a instrument rateing, is that true?

[KLRDMD]

Quote: iowaboy

Next question if you use your plane for busness travel ie its makes more sense time wise to fly than drive, can you also use the same plane for personal use?  Is there a percentage buisness verses personal allowed or what? Also I was told a person flying for there business can write off the cost of getting a instrument rateing, is that true?

[74657]

In regards to what Ken posted -

There are 4 business assets that are red flags for the IRS.  Boats, Planes, RV's and vacation homes.  My advice is NOT get greedy.  If you do, you better have good documentation.  Auditors have reviewed pilots logbooks and gone to great lengths to see what exactly corporations are using "business aircraft" for when they have reason to believe that you are feeding them a line of shiit.  The tax savings on a Mooney vs. a King Air or corporate jet are apples and oranges but the fact remains that planes are watched by the IRS.

I would write off IFR currency flyting and some mixed business/pleasure trips.  Would I log every hour as "training?"  Hell no.  The FAA requires a bi-annual flight review, not daily recurrency training.  Flying around the pattern or 100 dollar hamburgers?  Probably not.  Trying to screw the IRS is a pandoras box I choose not to open.  They have more time, money and lawyers than me.  If you have ever been through an audit or know someone who has you will know what I am talking about.

 

 

[KLRDMD]

Quote: 74657

Auditors have reviewed pilots logbooks and gone to great len

gths to see what exactly corporations are using "business aircraft" for when they have reason to believe that you are feeding them a line of shiit.

 

[FuriousPhoen1x]

Everybody is talking about their business here. Maybe without going into too much personal detail ya'll could specify how you use the airplane or maybe what line of work "works" for use!

[KLRDMD]

Quote: FuriousPhoen1x

Everybody is talking about their business here. Maybe without going into too much personal detail ya'll could specify how you use the airplane or maybe what line of work "works" for use!

[Jeff_S]

Quote: FuriousPhoen1x

Everybody is talking about their business here. Maybe without going into too much personal detail ya'll could specify how you use the airplane or maybe what line of work "works" for use!

[highplains]

I thought I might just chime in on the bonus depreciation issue.  I may be mistaken, but I believe you can only claim bonus depreciation on assets that are purchased new.  Used assets do not count.  Section 179 deductions may be taken on assets that are either new or used.  179 depreciations however have limits, as does bonus depreciation.  All this said, an asset that has been depreciated out can come back to get you when you sell or trade that asset later.  I am not  a tax accountant or an attorney.  I only find myself using these deductions as I am self employed.