Will Looming Tax Changes Doom the Bullish Business Aircraft Market?

Oct. 16, 2022

The opening session of the 2022 NBAA Tax, Regulatory & Risk Management Conference Sunday examined the current environment for new and used business aircraft transactions in the face of upcoming federal tax policy changes and continued uncertainties about the global economy.

The conference, which continues through Oct. 17, took place in advance of this week’s 2022 NBAA Business Aviation Convention & Exhibition (NBAA-BACE) in Orlando, FL.

Among the factors that may dampen market enthusiasm is the scaling back of several pro-business policies implemented under the 2018 Tax Cuts and Jobs Act and the 2020 CARES Act.

Most notable of those changes is the phasing out of bonus depreciation between now and 2027, with the reduction dropping to 80% next year. While that’s “not a huge difference” in the near-term, Angel Houck, an aviation tax consultant with Houck & Christensen CPAs, said its true effects may be felt as soon as 2024.

“For the past four-five years, we’ve had a bonus depreciation to offset the purchase of our new plane that is usually bigger and more expensive,” she said. “We’re hitting a point now where that’s no longer going to be the case.”

Additional changes under the Inflation Reduction Act of 2022 may also give companies and individuals pause when contemplating an aircraft purchase, including the significantly increased budget for IRS enforcement.

“Our clients’ number one question is, ‘Will I get audited?’” Houck said. “My answer is to always make sure your documentation is in order, because they will be looking at high-wealth individuals and large companies. Even a small adjustment can mean big dollars paid to the IRS.”

That said, Houck emphasized some of the upcoming changes to the IRS represent positive changes for taxpayers. “I’m actually excited about the $25 billion earmarked for IRS operations support,” she said. “That goes to answering the phones, responding to notices, getting your questions answered.”

For the moment at least, JetNet iQ adviser Rollie Vincent noted demand for both new and used business aircraft nevertheless remains “completely out of whack” with supply.

“Book to build [rates for new aircraft OEMs] are lovely right now, but probably not sustainable,” he continued. On the pre-owned side, Vincent noted, transactions are outpacing listed aircraft for sale by as much as three-to-one, fueled by off-market airplanes not listed publicly but available at the right price.

Even as trends inevitably stabilize, Vincent reiterated the sector’s overall health should insulate the business aircraft market from the severe drop-offs seen from the Great Recession. “We’re in a good place,” he said. “When the downtick occurs, the quality of this backlog should provide us with good coverage [against a significant downturn.]”

Learn more about NBAA-BACE.

Review NBAA’s tax resources.