CJI Town Hall: Bonus depreciation continues ‘until 2022′
Edward H. Kammerer, corporate lawyer and shareholder, Greenberg Traurig LLP, couldn’t find one mention of bonus depreciation in the Biden/Harris campaign’s statements on tax. Speaking to Corporate Jet Investor’s Town Hall meeting this week said, “So, right now we’ve got bonus depreciation, we’ve got it for this year and the next two. Before beginning January 2023 where it will be phased out 20% at a time for five years.”
Historically Congress has stepped into restore bonus depreciation as it is phasing out. While that may be a possibility, Kammerer said we just don’t know what’s going to happen. “I think there’s always a risk in trying to make the tax code more progressive [Biden] may try and remind some of the tax benefits that were seen as too friendly to upper income earners. It is possible aircraft could be singled out for ‘special treatment’ — we have seen our industry become the target in the past.”
Kammerer added: “But again there is nothing in the Biden platform that would point to that being one of their objectives. However, they are talking about an overall corporate tax increase from 21% up to 28% and changes to capital gains.”
Whilst rising rates are seen as bad for business, the flipside is that the bonus depreciation would become more valuable.
Bonus depreciation applies to any capital asset, so it is not a tax benefit directed specifically at business aviation. It is intended to catalyse capital investments across the US economy. Assuming that the aircraft is used specifically for business aviation, but you have to continue using that aircraft for business purposes at least 50% of the time for the remaining depreciable life of the aircraft — five or seven years. Failing to do that will force you to reinstate all prior years.
Meanwhile, Jay Mesinger is predicting a quiet first quarter for 2021. The Mesinger Jet Sales founder said: “I think that it is always a quiet first quarter after a frenzy in the fourth quarter. I don’t think the quieter first quarter is going to be indicative of policies or politics. I just think it is going to be more indicative of people knowing that to qualify and to conform for bonus depreciation and having 12 months to do, it is a much more challenging request than having a few weeks to do it in the last part of the year. So, I think the natural order of things is a much quieter first quarter.”
There is no edition of Town Hall next week as we are hosting Corporate Jet Investor Americas 2020. Please register for the event here.