Page 7 - Volume 12 Number 2

Section 179 is another option to depreciate a business aircraft or improvements. U.S. taxpayers have the option to elect a specific amount that fits their current year tax situation. Section 179 is a good option for companies that may not need 100 percent bonus depreciation.
For example, a taxpayer purchases a business aircraft for $2 million in 2018. Based on current year taxable income, the taxpayer can elect to expense $800,000 in 2018 and depreciate the remaining $1.2 million over the use life of the aircraft.
Entertainment Use of Business Aircraft
Historically, the general rule of IRC § 274 disallowed all entertainment expenses unless directly related or associated with the active conduct of the business. Therefore, the entertainment of clients, prospects, company retreats and other entertainment events where business was conducted immediately before, during or after the entertainment, has been a deductible use of a
business aircraft. Flying clients to a sporting event has been considered a deductible business use of an aircraft.
Effective January 1, 2018, TCJA disallows all entertainment expenditures, regardless of whether they are directly related to a business goal or connected to the taxpayer’s business activities, which includes entertainment use of a business aircraft. The taxpayer can continue to utilize the aircraft for business entertainment, but these expenditures are no longer tax deductible.
The Elimination of 1031 Like-Kind Exchange
Recapture of depreciation occurs when a depreciated aircraft is sold. The sale price exceeding the remaining tax basis is taxed as ordinary income. For example, a fully depreciated aircraft sold for $500,000 will result in $500,000 taxable gains. Section 1031 Like-kind Exchange is a provision that allowed for the deferral of the recapture gains historically. TCJA has eliminated the applicability of this provision to equipment and business aircraft. Beginning in 2018, a sale of a depreciated business aircraft will result in gain recognition immediately, taxed at the ordinary income tax rate.
The loss of this deferral provision should not create any hardship for taxpayers, as long as a replacement aircraft is purchased in the same tax year. With 100 percent bonus depreciation available for new and used
Depreciation Deductions
2018
Section 179 Expensing
$800,000
MACRS Depreciation Expense (20%)
$240,000
Total Depreciation Deduction
$1,040,000
Income Tax Savings from Depreciation
$416,000
FEBRUARY 2018
KING AIR MAGAZINE • 5