Didn’t read the 600 page tax bill? We did. Here’s what you need to know about the new tax laws and how they affect your business jet.
If you’re planning to buy a jet, buy now.
Take advantage of the new 100% expensing provision. Before the change, owners depreciated their jet over 5 to 7 years.
If you buy an aircraft after September 27, 2017 and before January 1, 2023, you can write off up to 100% of the aircraft’s purchase price in the first year of your jet’s use. Unlike bonus depreciation in past years, the “expensing” applies to new and pre-owned aircraft.
Example: You spend $5 million on a pre-owned business jet for your company in 2018. In 2018, your company also makes $20 million. You may write off up to 100% of the aircraft’s purchase price, which means you will be taxed as if you only made $15 million. If the aircraft was also used for personal flights, such as vacations, then your write off will be reduced accordingly.
Jet Linx can help.
You could lose out on 100% expensing if you don’t track your flights. Jet Linx keeps detailed records of your flights to help you track your annual aircraft usage. Once you receive your monthly Flight Activity Report, simply note whether the flight qualifies as business or personal use. Jet Linx will work with your CPA to make sure he or she has all of the information necessary so that you can take advantage of writing off 100% of your jet’s purchase price.
The Federal Excise Tax (FET) battle is over.
After years of litigation between the IRS and Net Jets and Flexjet, Congress amended the tax code to clarify that FET does not apply to aircraft management fees. The business aviation industry waited over half a decade for this much-needed clarification.
Like-Kind Exchange Rules Replaced with 100% Expensing.
Before the 2017 tax bill, if a depreciated aircraft was sold and replaced with a (more expensive) jet, the owner could complete a 1031 like-kind exchange to avoid realizing gain (profit) on the sale. 1031 like-kind exchange rules were complicated and cumbersome. Congress repealed the 1031 like-kind exchange provision applicable to aircraft. Here’s how the new tax bill works: If you sell your jet in 2018 for $1 million (and it was fully depreciated), then you will realize $1 million dollars’ worth of taxable gain (profit). If you then buy a new or used jet for $3 million dollars, you can write off $3 million and offset this “deduction” against your $1 million dollar gain.
The tax bill removed a business’s ability to deduct costs it incurred for employee travel from home to work. The tax bill also removed business deductions for entertainment expenses, even when the entertainment was associated with doing business.