In the hours and days immediately following the tragic attacks on America of 9/11, there was much speculation about the effects on the general aviation industry. While the events of September 11, 2001 have had a significant impact on the economy as a whole, sales of personal aircraft in Michigan have experienced a surprising boost. Certainly, the convenience of personal transportation has played a major role in this increase as airport lines and security have become more time consuming. The reduction of flights resulting from the airline cost-cutting have limited flexibility for the business person and affected the productivity of companies relying on commercial transportation. These factors alone can’t explain surge of people joining the flying community for more than just pleasure. Rebates, low and 0% interest rates, training allowances, and yes, even the IRS played a role in creating an environment that has introduced more people to the benefits of aircraft ownership and had an effect similar to that seen after the passage of the General Aviation Revitalization Act of 1995.
The IRS is here to help you? Well, believe it or not, a new tax law passed earlier this year represents a renewed attempt by our nation’s leaders to jumpstart the economic recovery. The bill applies to new airplanes acquired after September 10, 2001, and before September 11, 2004, and provides tax savings from economic stimulus provisions included in the Internal Revenue Code designed to encourage investment in capital assets. Visit your local airport and you’re sure to see plenty of forty and fifty year old aircraft operating for both business and pleasure. Even prior to the new tax law, Congress recognized that capital investment is an important part of our economy, and therefore allowed a five year depreciation of these assets. To further encourage investments, they do not require the depreciation to be spread evenly over the five years, but through a concept know as “double declining balance,” greatly accelerate depreciation during the first two years of ownership. Now with the additional incentives of 30% bonus depreciation on new airplanes, tax deferral opportunities are greatly expanded.
So how might a business person benefit from these new changes? First of all, the impact of these depreciation changes greatly reduce net cash investment for the purchase of a new airplane. Specifically, an operator in the 40% tax bracket who can successfully write off his aircraft ownership expense may have no cash investment in the airplane during the first four years. Additionally, when properly structured, many taxpayers have an opportunity to convert personal use into business use. The Internal revenue code provides an optional method of taxing an individual for personal use of an aircraft which many times amounts to less than 10% of the actual deductions flowing from the investment. Consult your tax professional prior to purchasing your new airplane or ask your Aircraft Dealer for the name of an Aviation Tax Specialist to set up your purchasing entity.
And you say you’re not a pilot? Local aircraft dealers like Suburban Aviation, Inc. in Lambertville, Michigan will actually teach you to fly your new airplane and even reimburse your expenses when you purchase a new Cessna airplane from them. Most of today’s pilots learned to fly in a Cessna airplane and the majority of these pilots continue to experience the freedom and flexibility that flight offers in one of Cessna’s many single engine models. For 75 years, Cessna has been the leader in general aviation aircraft providing a safe and reliable alternative to commercial airlines and the automobile.
So if your business can benefit from improved efficiency and tax savings, why not consider a company airplane? There are few tax saving opportunities as effective as fully depreciating an aircraft on a five year accelerated basis, and with today’s interest rate environment, a well-structured transaction often results in little or no after tax cash flow holding costs during the early years of ownership. Of course, arriving at your meeting on time and with all your luggage can also be pretty convincing!
About the Author Pat Redmond, Brighton, Mi usa airplanenoise@airplanenoise.com
