Sept. 15, 2020
NBAA’s work to achieve targeted relief for business aviation during the pandemic includes efforts to highlight potential tax planning consequences of reduced business travel in 2020. As a direct result of COVID-19, business closures and travel restrictions, aircraft purchased in 2020 could be ineligible for bonus depreciation, and depreciation recapture could be triggered on aircraft purchased in prior years.
Under the Tax Cuts and Jobs Act (TCJA) of 2017, eligible taxpayers can deduct 100% of the cost of qualifying aircraft in the first year of ownership through immediate expensing, also known as bonus depreciation. This tax policy has been proven to stimulate the economy by encouraging investments in new equipment, including business aircraft. However, to qualify for bonus depreciation, assets defined as “listed property” must meet the predominant business-use test under Internal Revenue Code § 280F(b).
With business travel depressed by the global spread of the coronavirus and mandatory lockdowns, tax experts are concerned that some businesses this year may fail to meet this predominant business use test. Failing this test would make aircraft acquisitions in 2020 ineligible for bonus depreciation. Also, it would trigger depreciation recapture for aircraft acquired in prior years, which would essentially reverse prior-year tax benefits received from bonus depreciation.
The resulting tax obligations will reduce the amount of capital many small and medium-sized businesses can deploy at a time their investment is most needed. Enforcement of the § 280F recapture provisions during the pandemic is also contrary to the economic stimulus and incentives set forth in the TCJA and recent relief legislation.
NBAA acted quickly to highlight this risk to members of Congress and has met with IRS and Treasury Department officials to discuss potential solutions to mitigate the adverse tax and cash flow effects from depreciation recapture for the 2020 and 2021 tax years. NBAA’s proposal would provide relief by temporarily eliminating the requirement to recapture excess depreciation on assets for which the predominant business use test is not met due to the COVID-19 pandemic.
Treasury Department officials have acknowledged the importance of NBAA’s proposal, but stated they currently do not have the authority to implement the requested relief without further legislative action.
“Immediate expensing is a proven policy to stimulate the economy, and now, more than ever, we should be focused on helping businesses across the country recover from the impact of the pandemic as quickly and possible.,” said Scott O’Brien, NBAA senior director, government affairs.
“NBAA will continue its efforts to seek temporary relief from the predominant business use test, and we strongly advise aircraft owners and operators to carefully monitor aircraft usage and make certain their advisors are familiar with the predominant business use test requirement of IRC §280F,” O’Brien added.
Review details on NBAA’s proposal regarding depreciation recapture. (PDF)
International Business Aviation Council Ltd.