Business Aviation Insider

Regulatory Hot Topic

June 17, 2019

Although proposed rules on bonus depreciation have been issued, the Treasury Department and IRS continue to work through the entertainment and commuting changes.

The Tax Cuts and Jobs Act (TCJA), passed in December 2017, provided a boost to general aviation through the extension and modification of 100-percent bonus depreciation. However, the TCJA also made tax policy changes that could pose challenges for aircraft owners and operators.

After the legislation was signed into law, NBAA’s Tax Committee began analyzing key provisions, developing resources and determining areas where questions remained. Given the complexity of the TCJA, the IRS and Treasury Department also needed to carefully review the law and determine what additional guidance was needed.

For example, past versions of bonus depreciation only applied to new property. But thanks to advocacy from NBAA and other groups, the TCJA extended bonus depreciation to qualify-ing used property, so long as it wasn’t “previously used” by the taxpayer. However, this presented a question: what about a taxpayer that chartered an aircraft before purchasing it? Would charter use mean the purchase didn’t qualify for bonus depreciation?

NBAA submitted a request for guidance suggesting that “incidental” use of an aircraft by a taxpayer should not limit the ability to qualify for bonus depreciation. In proposed guidance, the government agreed. So long as the tax-payer never owned the aircraft or had the right to depreciate it, the property can qualify for bonus depreciation, assuming all other requirements are met.

The TCJA also limits a company’s ability to deduct entertainment expenses directly related to its business and limits deductions for commuting costs. On the disallowance of entertainment expenses, NBAA requested that a primary-purpose test be used to determine if transportation costs are deductible. For example, if a business trip includes incidental entertainment, only the cost of the entertainment, not the transportation costs, should be disallowed.

For commuting expenses, NBAA recommended that if costs are properly reported as income to the employee, the employer should be allowed to deduct the costs. This is consistent with other areas of tax policy, where employer disallowances are limited if the item is treated as taxable employee compensation.

Although proposed rules on bonus depreciation have been issued, the Treasury Department and IRS continue to work through the entertainment and commuting changes.

“NBAA proactively requested guidance on these issues and met with Treasury officials to explain their importance to business aviation. We look forward to reviewing proposed rules in the near future,” said Scott O’Brien, NBAA’s senior director of government affairs.

Through events (including NBAA’s Business Aviation Taxes Seminar on May 2-3), website resources and articles, the association will continue keeping members informed about tax-reform developments.