Territorial Limitations - Aviation Insurance & Risk Management ...
Territorial Limitations - Aviation Insurance & Risk Management ... Territorial Limitations - Aviation Insurance & Risk Management ...
Section 179 Treatment AIRCRAFT TAX PLANNING In addition to the accelerated depreciation methods, Section 179 of the tax code also allows the taxpayer to take an immediate deduction of a portion of the purchase price (up to $105,000 in 2005). The maximum deduction is adjusted each year for infl ation. Section 179 treatment is subject to certain limitations. The available Section 179 deduction for a given tax year is reduced by one dollar for each dollar in excess of $420,000 of qualifi ed property placed in service by the taxpayer during that year. The phase-out amount is also indexed each year for infl ation. The Section 179 deduction is further limited to the amount of the taxpayer’s taxable income from the active conduct of any trade or business, without regard to net operating losses or the deduction for one-half of self-employment taxes. Bonus Depreciation From 2001 through 2004, the tax code allowed a bonus amount of additional depreciation to be taken in the year that a new aircraft was purchased and placed in service. The bonus depreciation provisions were scheduled to expire at the end of 2004, but were extended by the American Jobs Creation Act of 2004. Purchasers of qualifying internal-use corporate aircraft, acquired before the end of 2004, had until the end of 2005 to place the aircraft in service and claim the bonus depreciation. Currently, it appears unlikely that Congress will renew these bonus depreciation provisions.
Upgrades and Overhauls AIRCRAFT TAX PLANNING Generally, any upgrades to an aircraft are considered capital expenditures, i.e. improvements to a depreciable asset that add to the asset’s value or extend its useful life. Under current IRS guidance, any improvement or addition to an aircraft is treated as a separate new asset, which is depreciated using the same method and recovery period as the aircraft itself. While the IRS views engine overhauls for aircraft to be capital in nature, limiting the taxpayer’s ability to immediately deduct the cost of an overhaul, there is support to treat engine overhauls as fully deductible business expenses. In 2003, Federal Express received a Tax Court determination that their engines were so inextricably linked to the aircraft, the overhaul did not meaningfully extend the life of the aircraft taken as a whole. Therefore, in at least this one instance, the taxpayer was allowed to fully deduct its engine overhauls in the current year as ordinary and necessary business expenses. You should consult your tax advisor, however, as it cannot be assumed that the same result would apply in other cases. For a more in-depth analysis of the Federal Express case and its implications for tax planning, see Louis M. Meiners, Jr., "Aircraft Repair Expense Deduction Expanded", Aviation Insurance & Risk Management, Fall 2005 (Vol. 5), p. 14. Selling the Aircraft Upon the sale of your aircraft, the taxable gain or loss on the sale will need to be calculated and reported. The gain or loss is equal to the difference between the selling price and your adjusted basis in the aircraft, i.e. the original cost, plus any capital additions, less depreciation allowed or allowable to date. Although this treatment results in the recapture of previously deducted depreciation, the seller still receives the tax advantages of tax deferment, potential preferential capital gain treatment on the sale,
- Page 1 and 2: volume 6 / winter 2006 - $3.95 Terr
- Page 3 and 4: Aviation Insurance & Risk Managemen
- Page 6 and 7: To date, we have devoted Aviation I
- Page 8 and 9: Thomas H. Chappell Tom Chappell is
- Page 10 and 11: writers will sell this certifi cate
- Page 12 and 13: Central and South America or Wester
- Page 14 and 15: Louis M. Meiners, Jr. Louis M. Mein
- Page 16 and 17: Charles W. Clarkson Chuck Clarkson
- Page 18 and 19: Work Comp coverage. You want to tak
- Page 20 and 21: Brent Anderson Over the course of h
- Page 23 and 24: 615.435.8319 Complimentary and subs
- Page 25: Tax Depreciation Methods AIRCRAFT T
- Page 29 and 30: Our Professional Sales Services Inc
Upgrades and Overhauls<br />
AIRCRAFT TAX PLANNING<br />
Generally, any upgrades to an aircraft are considered capital expenditures,<br />
i.e. improvements to a depreciable asset that add to the asset’s value or<br />
extend its useful life. Under current IRS guidance, any improvement or<br />
addition to an aircraft is treated as a separate new asset, which is depreciated<br />
using the same method and recovery period as the aircraft itself. While the<br />
IRS views engine overhauls for aircraft to be capital in nature, limiting the<br />
taxpayer’s ability to immediately deduct the cost of an overhaul, there is<br />
support to treat engine overhauls as fully deductible business expenses. In<br />
2003, Federal Express received a Tax Court determination that their engines<br />
were so inextricably linked to the aircraft, the overhaul did not meaningfully<br />
extend the life of the aircraft taken as a whole. Therefore, in at least this one<br />
instance, the taxpayer was allowed to fully deduct its engine overhauls in<br />
the current year as ordinary and necessary business expenses. You should<br />
consult your tax advisor, however, as it cannot be assumed that the same<br />
result would apply in other cases. For a more in-depth analysis of the Federal<br />
Express case and its implications for tax planning, see Louis M. Meiners, Jr.,<br />
"Aircraft Repair Expense Deduction Expanded", <strong>Aviation</strong> <strong>Insurance</strong> & <strong>Risk</strong><br />
<strong>Management</strong>, Fall 2005 (Vol. 5), p. 14.<br />
Selling the Aircraft<br />
Upon the sale of your aircraft, the taxable gain or loss on the sale will need to be calculated and reported. The gain or loss is<br />
equal to the difference between the selling price and your adjusted basis in the aircraft, i.e. the original cost, plus any capital<br />
additions, less depreciation allowed or allowable to date. Although this treatment results in the recapture of previously deducted<br />
depreciation, the seller still receives the tax advantages of tax deferment, potential preferential capital gain treatment on the sale,
Change language