Bonus tax benefit bill may soon become law

By Paul Lowe

July 1, 2004
Taxes

The House of Representatives approved the American Jobs Creation Act of 2004 (H.R.4520) on June 17, paving the way for a one-year extension of the time allotted to place into service business aircraft purchased under the accelerated-depreciation tax bonus.

The House bill, passed by a vote of 251-178, extends the placed-in-service deadline from the end of this year to the end of next year. Because the Senate already passed its version of the tax bill, which included the same provision for extending the placed-in-service requirement, it is anticipated that the new deadline will be included in the final bill that emerges from a House/Senate conference committee to iron out differences in the two measures.

“Today’s vote in the House of Representatives marks another significant milestone in our effort to extend bonus depreciation for general aviation airplanes,” said General Aviation Manufacturers Association president and CEO Ed Bolen. “We hope that negotiators from the House and Senate can quickly resolve any differences between their two versions of this bill, and send it to President Bush for his signature.”

Under present law, if a taxpayer purchases a business aircraft before December 31 and actually begins business use of that aircraft by the end of 2004, the taxpayer can claim a first-year federal tax deduction of 50 percent of the cost of the aircraft on top of other available depreciation. Under H.R. 4520 and the Senate’s Jumpstart Our Business Strength Act (S.1637), approved 92-5, that deadline for putting the aircraft into use would extend to Dec. 31, 2005.

Long Lead Times

General aviation groups are lobbying for the extension because of the long lead time to produce an airplane. For an aircraft to qualify, however, it must be new, must have a purchase price exceeding $200,000 and must have an estimated production period exceeding four months. In addition, the purchaser must have made a nonrefundable deposit of the lesser of $100,000 or 10 percent of the purchase price.

The General Aviation Manufacturers Association credits the accelerated-depreciation bonus as a driver for $2 billion in jet sales, and GAMA made extending the bonus depreciation its top legislative priority this year.

But it encountered rough sledding, because the Joint Committee on Taxation and the Congressional Budget Office argued that extending the accelerated-depreciation bonus would reduce revenue by $12 billion over the next 10 years.

If H.R.4520 passes, it and S.1637 would go to House/Senate Conference Committee to iron out differences. GAMA is hopeful that this could be resolved in time to have a bill on the President’s desk by the August summer recess.

The first accelerated-depreciation bonus was included in the Job Creation and Worker Assistance Act of 2002 to provide an economic incentive to 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 Sept. 10, 2004, and placed in service before Jan. 1, 2005.

Last year GAMA helped lead a successful effort in having the bonus depreciation increased to 50 percent for new aircraft purchased after May 5, 2003, and placed in service before Jan. 1, 2005.

In the first three months after the first-year depreciation was increased to 50 percent, 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.

Although the intent of Congress 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 end the benefit by late spring because it takes business aviation OEMs eight to 14 months to fill a customer’s order. That would place delivery outside the current placed-in-service window to qualify for bonus depreciation.

In a May 21 letter to Rep. William Thomas (R-Calif.), chairman of the House Ways and Means Committee, NBAA chairman and interim president Don Baldwin said extension of the bonus depreciation is critical to stabilize general aviation manufacturing and related jobs, and would encourage American businesses to continue to invest “in this safe and efficient form of transportation.”

“Unless it is enacted,” he told Thomas, “many of NBAA’s member companies that relied on the intent of Congress to have bonus depreciation in effect throughout 2004 will not be able to use this very helpful tax incentive.”  

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