The IRS has issued a guidance proposal regarding the extension and modification of 100 percent bonus depreciation, as part of the Tax Cuts and Jobs Act (TCJA).
National Business Aviation Association (NBAA) officials said the action follows the organization’s quest for clarity on the topic.
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.
The TCJA specifies used property can only qualify for bonus depreciation if the taxpayer did not previously use it, officials said, and in its guidance request the NBAA explained 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.
“The definition of previously used in the proposed regulations is very taxpayer-favorable,” John Hoover, vice chair of NBAA’s Tax Committee and a partner at Holland & Knight LLP, said. “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. An aircraft is considered previously used by the taxpayer only if the taxpayer had a depreciable interest in the property before buying it.”
Another clarification addresses when an aircraft is acquired for purposes of bonus depreciation, officials said, noting 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 at a later date.