The aircraft acquisition specialists at Jet Linx have some good news for you: from right now until January 1, 2023, you can write off up to 100% of the purchase price of a business jet during the first year of use. Unlike bonus depreciation in the past, this new “expensing” applies to both new and pre-owned aircraft.
A simple example: Let’s assume you spend $10 million on a new or pre-owned jet in 2019. We will also assume that your business makes $40 million (in profit) in that same year. If you use your private jet for business purposes only, then you may write off up to 100% of the purchase price of your aircraft. In turn, you will only be taxed as if your business made $30 million in taxable gains.
The only catch is that if you use the aircraft for leisure or personal trips, your tax write off will be reduced accordingly. Even if you do plan to use a business jet for some personal travel, the new laws still provide an excellent incentive.
Why is the current financial climate so conducive to purchasing private jets for business? Check out the follow reasons:
1. The Federal Excise Tax skirmish between private jet companies and the IRS is finally over.
Due to Congress amending the tax code, it is now clear that the Federal Excise Tax doesn’t apply to aircraft management fees. This clarification in the tax code has been much needed, and our acquisition experts are thrilled to see what it will do to stimulate the private aircraft market for buyers and sellers alike.
2. The 1031 Like-Kind Exchange has been replaced by 100% expensing.
Before the changes in the 2017 tax bill, if a depreciated jet was sold and replaced with a more expensive one, an owner could complete a 1031 Like-Kind exchange to avoid realizing gains on the sale. This process was cumbersome, but it’s been replaced by a much simpler process.
3. The new tax bill works like this:
If you sell a fully depreciated jet in 2018 for $1 million, you will realize $1 million of taxable gain (profit) from the sale. If you turn around and purchase a new or used jet for $3 million, you can write off the $3 million and offset the deduction against your $1 million taxable gain.
4. Tracking your aircraft usage is crucial.
Luckily, Jet Linx can help you track your flights, ensuring that you don’t lose out on 100% expensing. When you receive your monthly Flight Activity Report, you can work with your CPA to note whether these flights were intended for business or leisure, and you will be awarded the appropriate tax write off.