A recently issued notice of proposed rulemaking from the IRS on the extension and modification of 100 percent bonus depreciation includes key recommendations from NBAA’s formal request for guidance on the deprecation changes passed into law as part of the Tax Cuts and Jobs Act (TCJA).
The TCJA amended the Internal Revenue Code to provide 100 percent bonus depreciation for both qualifying new and used property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2027. For tax years after 2022, there is a phase down of bonus depreciation in increments of 20 percent each year for qualified property acquired and placed in service before Jan. 1, 2027.
The extension of bonus depreciation to used property was a significant legislative victory for NBAA, and since passage, the association has requested specific guidance on how the provision applies to business aviation. Under the TCJA, used property can only qualify for bonus depreciation if it was not “previously used” by the taxpayer. In its guidance request, NBAA explained that a taxpayer conducting incidental use of an aircraft, such as chartering or demonstration flights, and then ultimately purchasing the aircraft, should not disqualify the acquisition from bonus depreciation. View NBAA’s formal request for guidance. (PDF)
“The definition of ‘previously used’ in the proposed regulations is very taxpayer-favorable. So long as the taxpayer never owned the property or had the right to depreciate it in the past, the property can potentially qualify for bonus depreciation,” said John Hoover, a partner at Holland & Knight LLP and vice chair of NBAA’s Tax Committee. “An aircraft is considered previously used by the taxpayer only if the taxpayer had a depreciable interest in the property before buying it.”
The clarification regarding “previously used” is important, as it broadens the types of transactions that could potentially qualify for bonus depreciation.
“For example, if a taxpayer leased an aircraft from an owner and decided to buy it, the aircraft could be eligible for bonus depreciation,” explained Glenn Hediger, CPA and president of Aviation Financial Consulting, LLC. “Similarly, if an individual chartered an airplane and later decided to purchase it, it could still be eligible for 100 percent bonus depreciation.”
Another clarification relates to when an aircraft is “acquired” for purposes of bonus depreciation. For example, if a taxpayer entered into a binding written contract with a manufacturer to build an aircraft in July 2017, but “physical work of a significant nature” didn’t begin until October 2017, was the aircraft acquired after Sept. 27, 2017 and thus eligible for 100 percent bonus depreciation?
The proposed regulations explain the aircraft is considered “acquired” no later than the date of a binding written contract to build it, even though physical work on the aircraft and actual delivery may occur later. In the example above, the aircraft would not be eligible for 100 percent bonus depreciation because the binding written contract was entered into prior to Sept. 27, 2017.
“NBAA appreciates the work of the IRS and Department of the Treasury to issue these proposed regulations, and we are grateful to see that their position on application of bonus depreciation to used property is consistent with our guidance request,” said Scott O’Brien, NBAA’s senior director of government affairs.
Taxpayers may rely on the proposed regulations for qualified property acquired and placed in service after Sept. 27, 2017.
|Business aircraft flying ticked up 2.1 percent year-over-year in the U.S., Canada, and the Caribbean last month, according to TraqPak data released today by business aviation research firm Argus International. This was better than the 0.9 percent increase the company had predicted for the month; Argus is calling for a 1 percent increase this month.
Part 91 activity logged another solid month, climbing 3.8 percent from last August. This was followed by a 0.4 percent increase in Part 135 operations, while fractional flying was flat from a year ago.
For the second consecutive month, all business aircraft categories except for light jets recorded gains. Midsize jet flying marked a resurgence last month, rising 4.2 percent, with turboprops not far behind with a 3.1 percent uplift from a year ago. Large-cabin jets, which have been at the top of the leaderboard for most of the past several years, climbed 1.9 percent year-over-year, while light jet activity dropped by 1.6 percent, continuing recent losses in this category.
Part 135 large-cabin jet flying saw the only double-digit gain in individual categories, rising 14.5 percent. Conversely, fractional large-cabin jets posted the only double-digit decrease, falling 24.8 percent.
Thanks to the expected service entries of its Global 7500 later this year and Global 5500 and 6500 next year, Bombardier Business Aircraft is likely to pick up more market share of the large-cabin business jet market at Gulfstream Aerospace’s expense, according to a recent report from UBS Global Research. “Bombardier has been conceding share to Gulfstream for the last few years,” UBS said, especially as the Canadian aircraft manufacturer’s Global 7500 program suffered delays.
“On the back of a sold-out Global 7500 backlog through 2020, we see Bombardier clawing its market share back to 40 percent,” said UBS analyst Myles Walton. “Other product refreshes for the Global 5000 [now the Global 5500] and the Global 6000 [now the Global 6500] should help Bombardier maintain its production levels on those two platforms, but given the clean-sheet design of the G500 and G600 at Gulfstream, we would expect Bombardier’s head-to-head product offering there to fall a bit short of Gulfstream.”
Bombardier has garnered an average of about 37 percent of the large-cabin jet market share by units over the past decade, hitting a recent high of about 40 percent in 2014 and low of 33 percent last year. However, this could potentially exceed 40 percent in both units and value by 2020 as Bombardier delivers its new Globals to customers, UBS said.
by AINalerts: August 28, 2018
As the business aviation industry continues to face a workforce shortage, salaries are pushing up, with several positions improved by double digits and at least one position experiencing a 30 percent increase, according to the 2018 NBAA Compensation Survey. NBAA found an average of 3 to 4 percent increases across the 16 positions involved in the survey. The cash compensation for a non-flying aviation department manager category jumped 30 percent, to $205,000; maintenance foremen were up 14 percent, to $127,000; and senior captain salaries climbed 12 percent, to $164,000, the survey data indicates.
“The survey shows that our members are adjusting and keeping up with industry trends,” said Peter Korns, NBAA’s manager of tax, operations, and workforce engagement. “As our industry continues to work to attract and retain quality talent, we are seeing real efforts to fairly compensate pilots and mechanics who might otherwise seek out alternative opportunities.”
Korns added that the survey was largely in line with expectations. But not all salaries increased. “We see some significant decreases in dispatcher and line service personnel salaries—down 12 percent and 10 percent, respectively—which is cause for further analysis,” he said.
This year’s survey marked its largest data set to date, encompassing 790 NBAA operating member companies that provided data for 4,130 employees.
By AINalerts : August 28, 2018
Business aircraft valuations are showing signs of rebound, with heavy jets increasing 13.8 percent in the last 12 months and light jets improving by nearly 25 percent, according to Amstat’s latest Aircraft Valuation Tool (AVT) report.
By the end of June, heavy jet values had jumped to $16.3 million, a gain that benefited from a steady climb over the past couple of months. While values have fluctuated in this category this year, the $16.3 million is still up 7.8 percent since the beginning of the year and more than $3 million up from the 12-month low point in October, when values skirted $13 million, the AVT report showed.
Light jets also have showed gains this year, up 4.8 percent since the beginning of the year, to a normalized valuation of $2.5 million. This category has climbed steadily since last August, when values were $2.2 million, and are up notably since June 2017, when they dipped below $2 million.
Medium and super-midsize aircraft values are on par with where they were a year ago. Medium jets have remained at roughly the $3 million level over the past 12 months, while super-mids came in a $6.7 million, near where they were a year ago but a dip from the $7.5 million value in April. Turboprops, meanwhile, are up 1 percent year-over-year, marking a rebound since a drop last fall. Year-to-date, values are up 7.8 percent.
Due to a growing global economy, there has been a turnaround in worldwide jet sales, and the aircraft market is balanced for the first time in years, creating a healthy, sustainable marketplace, according to a veteran broker. “The days of an airplane losing 20, 25 percent a year, which is of course not sustainable, are gone,” said Jay Mesinger, CEO of Mesinger Jet Sales, adding demand is now outpacing supply. “It’s the first time that my industry has been so bold to use words like ‘half full’ or ‘optimistic’ or ‘enthusiastic’ in years, and those are the words that are universally being used by all of us engaged in aviation.” Mesinger shares his perspective in this week’s NBAA Flight Plan podcast.
by NBAA 7/16/2018