Passed into law in December 2017, the Tax Cuts and Jobs Act (TCJA) has implications for business aircraft owners and operators. In addition to lowering the corporate tax rate to 21 percent, the TCJA provides for immediate expensing of capital investments, repeals like-kind exchanges and makes a host of other changes that impact business aviation.
NBAA has resources to help members understand key tax reform issues and will release additional content over the coming months. The IRS and Treasury Department will also be issuing guidance to further explain many provisions and NBAA plans to submit requests for guidance on selected issues.
100-Percent Expensing (Bonus Depreciation)
The TCJA provides 100-percent expensing, which allows taxpayers to immediately write off the cost of aircraft acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023 (Jan. 1, 2024 for longer production period property/certain aircraft). Through the efforts of NBAA and a coalition of GA groups, 100 percent expensing now applies to both factory-new and pre-owned aircraft so long as it is the taxpayer’s first use of the aircraft.
Learn more about bonus depreciation (PDF).
Taxpayers will no longer be eligible to defer taxable gain on the sale of aircraft via a like-kind exchange, and the gain is now subject to recapture for tax purposes. This provision is effective for transfers after 2017, and is a permanent repeal of application of section 1031 rules to exchanges involving aircraft and other tangible personal property. However, the 100 percent expensing of new and used property helps to compensate for the repeal of like-kind exchanges for tangible personal property.
Learn more about like-kind exchanges.
Changes to Commuting and Business Entertainment Deductions
Under the TCJA, employers no longer can deduct the cost of providing transportation to employees to commute between the employee’s residence and place of employment unless provided for the safety of the employee. In addition, beginning in 2018, all entertainment expenditures, regardless of whether they are directly related to a business goal, are subject to a 100-percent deduction disallowance.
There are numerous questions about how these provisions will be implemented and their specific impact on business aviation. NBAA plans to submit a request for guidance to the IRS and Treasury Department for clarification on these complex provisions.
Changes for Aircraft Owned in “Non-Traditional Structures”
Aircraft owned in non-traditional ownership structures, including family offices and other special purpose entities, family trusts or individually, face unique challenges with passage of the TCJA. From the repeal of certain miscellaneous itemized deductions to net operating loss changes, there are many issues to analyze.
Learn more about issues for non-traditional structures (PDF).
Federal Excise Taxes for Managed Aircraft
The TCJA also makes clear that owner flights on managed aircraft are not subject to Federal Transportation Excise Tax (FET) ticket tax, but rather are subject to the non-commercial fuel tax. This issue has been the subject of controversy for more than 60 years, and this amendment clarifies the law consistent with the understanding of most people in the industry.
NBAA plans to submit a request for guidance to the IRS and Treasury Department to further clarify how this new provision will be implemented.
Learn more in NBAA’s overview of tax reform impacts on business aviation.