Both houses of Congress passed a bill that extends until December 31 next year the “placed-in-service” deadline for business aircraft purchased on or before December 31 this year to qualify for a 50-percent bonus depreciation allowance. It became law when President Bush signed the bill on October 22.
Under the previous law, an aircraft purchased before this December 31 had to enter service by that date to qualify for the accelerated depreciation benefit, a practical improbability because of long production lead times in an industry that does not stockpile inventories.
Although Congress’ intent in introducing the benefit was to have bonus depreciation remain a strong incentive for capital purchases through the remainder of this year, the realities of aircraft manufacturing would essentially have ended the benefit by late last spring because it takes business aviation OEMs eight to 14 months to fill a customer’s order. That would have pushed delivery of any orders placed after the spring outside the current placed-in-service window to qualify for bonus depreciation.
Extending the ‘Placed-in-Service’ Deadline
The General Aviation Manufacturers Association (GAMA), which last year spearheaded the successful effort to have the bonus depreciation increased to 50 percent for new aircraft purchased after May 5 last year and placed in service before January 1 next year, again led the general aviation industry in seeking an extension to the placed-in-service deadline. The most recent extension was included in the Jumpstart Our Business Strength (Jobs) Act (H.R. 4520), passed by the House on October 8 and the Senate on October 11.
“Bonus depreciation has stimulated industry sales by nearly 30 percent since it was first enacted,” said Ron Swanda, interim president of GAMA. “Extending the ‘placed-in-service’ date until the end of next year provides a real buyer incentive. Without this extension, aircraft purchased this year but delivered next year would not have qualified for bonus depreciation.”
News of the Senate vote came just before the opening of the NBAA Convention in Las Vegas last month. “Extension of the placed-in-service requirement is great news for the business aviation community,” said NBAA president and CEO Ed Bolen. “This is a strong incentive for companies to purchase new aircraft, and the purchase of a new aircraft is a direct investment in the corporate flight department.”
Bolen was president of GAMA when the first accelerated-depreciation bonus was included in the Job Creation and Worker Assistance Act of 2002 to provide an economic incentive for businesses to purchase new capital equipment. It allowed the buyer to take a “bonus” 30-percent depreciation deduction in the first year in addition to the normal 20 percent. To be eligible for that 30-percent bonus, the aircraft had to be purchased after Sept. 10, 2001, and before September 11 this year and placed in service before January 1 next year.
The first-year depreciation was increased to 50 percent in the Jobs and Growth Tax Relief Reconciliation Act of 2003. In the first three months after the bill was passed, the general aviation industry saw a 43-percent increase in orders. GAMA said a survey of aircraft purchasers revealed that the 50-percent bonus depreciation was a deciding factor in a large percentage of those sales.
A buyer can fulfill the requirements by signing a purchase agreement before January 1 next year. The standard IRS definition for “placed in service” is: “You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity or a personal activity.”
Swanda said the extension is vital to the continued recovery of the GA industry. “This will stimulate jobs growth in our industry,” he added.