Time to Lock in Bonus Depreciation for Your Next Jet

September 15, 2022

There are approximately 100 days remaining in 2022. That’s significant for many companies that often use this last quarter as the one that drives their most business. This year, the final days of the calendar mark a deadline for acquiring a business jet.

Now until the end of the year, clients should be making their move and taking advantage of tax rules on business aircraft purchases. 2022 is the last year the federal government will allow taxpayers to immediately expense 100% of a preowned private jet used for business. With the many advantages that private aviation affords businesses and individuals, that caveat is likely to be met by the vast majority of privately owned aircraft.

This provision has no dollar limitation in 2022, but that will change in 2023 to be restricted to an immediate depreciation of 80%. If one’s business had such a successful 2022 with significant taxable income, it makes great sense to utilize a business aircraft to improve efficiency and facilitate business travels.

For example, a $10M aircraft acquired in 2022 can reduce taxable income by the full $10M. At a 40% effective tax rate, clients will reduce their income tax payment by $4M next spring. If clients have been considering a private jet purchase, this might truly be the best time to pull the trigger for the foreseeable future.

The year-end purchase has another profound advantage. Because the depreciation is based on the ratio of business travel to personal, accounting can be tougher than it should be. If one closes on the airplane in December and only fly a handful of times before the end of the year – Check on the investment property potential in Telluride, get a round of golf in with a client in Miami – it’s simple to show that their one or two flights were all business. There are fewer flights to justify to tax authorities to fulfill the required business use consideration. After the 2022 depreciation, one’s business tax obligation is over in 2023 and beyond, meaning using the aircraft for a personal trip will have no tax effect.

This summer has proven that everyone’s back to travel – at least those people who do not have to rely on poor airline service and schedules. For those running a business based on the airlines’ schedule, things are not easy. Charter demand is higher than it ever has been, and the prices reflect it. Premiums are way up, availability is way down, and it seems that some of the bigger providers in the space can’t answer the demand. These charter companies are willing to get aggressive to operate one’s aircraft while not in use, significantly reducing the cost of ownership by offsetting fixed operating expenses and providing substantial revenue for otherwise-idle equipment.

Airplane deals take a while to get to the finish line. That means, September and October are likely the last calls to get something done before the end of the year. Now is the time to have a flight department or business team look for the next (or first) aircraft.

Reach out to Hatt & Associates to help navigate one’s way through this complicated aircraft marketplace and to take advantage of disappearing tax benefits.