$300,000 tax incentive program - how's that work?

[TangoWhiskey]

Diamond and other manufacturers are touting the special incentives the gov't is providing through the end of the year:

Combine this with the United States government’s special bonus depreciation tax incentive program that allows new owners to write off up to $300,000 of the purchase price, and it is likely the best deal you will make this year.

So can one of you tax guys tell me in plain (plane?) English how that works? Does it mean that if I have a business that's going to owe $300,000 in taxes (theoretical question), I can buy a plane for business use, write off $300,000 of the purchase price, and owe no taxes? I'm sure it's NOT that, so that's why I'm asking.

 

[wabower]

Diamond and other manufacturers are touting the special incentives the gov't is providing through the end of the year:



So can one of you tax guys tell me in plain (plane?) English how that works? Does it mean that if I have a business that's going to owe $300,000 in taxes (theoretical question), I can buy a plane for business use, write off $300,000 of the purchase price, and owe no taxes? I'm sure it's NOT that, so that's why I'm asking.

The writeoff of 300k is a deduction, not a tax credit. It reduces the tax on that amount of income at the highest bracket applicable to the category of income to which the losses apply. If your top bracket is 40%, the 300k loss theoretically saves you 120k in tax, assuming no alternative minimum tax calculations.

 

[gprellwitz]

The writeoff of 300k is a deduction, not a tax credit. It reduces the tax on that amount of income at the highest bracket applicable to the category of income to which the losses apply. If your top bracket is 40%, the 300k loss theoretically saves you 120k in tax, assuming no alternative minimum tax calculations.

And, IIRC, it's a BUSINESS deduction, so the plane must be used for business purposes. Now, that can include putting it on leaseback or something, but if you're only using it to do $100 hamburger runs, fergedabowtit.

 

[TangoWhiskey]

The writeoff of 300k is a deduction, not a tax credit. It reduces the tax on that amount of income at the highest bracket applicable to the category of income to which the losses apply. If your top bracket is 40%, the 300k loss theoretically saves you 120k in tax, assuming no alternative minimum tax calculations.

Yeah, but don't you have to pay a luxury tax or something like that on an item like this? Wouldn't that negate the value of this somewhat??

(I'm not an accountant, I don't play one on TV, and I didn't sleep in a Holiday Inn last night).

 

[mikea]

And, IIRC, it's a BUSINESS deduction, so the plane must be used for business purposes. Now, that can include putting it on leaseback or something, but if you're only using it to do $100 hamburger runs, fergedabowtit.

Yeahbut, you can adjust for the proportion of use that isn't business, you know, the 10%.

 

[Dave Siciliano]

This is always interesting to me. Kinna like the person that purchased a bunch of stuff on sale and thought they had saved a lot of money, but they had to spend the money to get the things on sale.

If you need a business plane, maybe this could push you to move by year end all other things being equal. If you don't need a business aircraft, it makes little sense. Even if you do need one, you'd have to have a lot of taxable income to get the full benefit. You will then have a plane with a reduced tax basis to deal with later.

I could use the deduction, but sure wouldn't want to spend all the money it would take to get it. Does TARP money qualify <g>.

Best,

Dave

 

[gprellwitz]

Of, and IIRC, the benefit only applies to NEW aircraft!

 

[mikea]

This is always interesting to me. Kinna like the person that purchased a bunch of stuff on sale and thought they had saved a lot of money, but they had to spend the money to get the things on sale.

If you need a business plane, maybe this could push you to move by year end all other things being equal. If you don't need a business aircraft, it makes little sense. Even if you do need one, you'd have to have a lot of taxable income to get the full benefit. You will then have a plane with a reduced tax basis to deal with later.

I could use the deduction, but sure wouldn't want to spend all the money it would take to get it. Does TARP money qualify <g>.

You should see how many people call Dave Ramsey and say they have a (bigger) mortgage for the tax deduction. Conventional wisdom.

 

[wabower]

The big trap at the end is the recapture of depreciation (at ordinary rates) at the time of resale, especially when the purchase has been financed with a long-term note. It can get Real ugly.

Yeah, but don't you have to pay a luxury tax or something like that on an item like this? Wouldn't that negate the value of this somewhat??

(I'm not an accountant, I don't play one on TV, and I didn't sleep in a Holiday Inn last night).

 

[nddons]

All of the above are correct. The Sec. 179 deduction and accelerated depreciation only applies for business use of a NEW aircraft.

There is no longer a luxury tax. That was an ill-conceived tax that ended up reducing sales of luxury items, and has been repealed.

Wayne raises a good point on depreciation recapture. One way to avoid that is to trade in your aircraft on another aircraft in a like-kind exchange. These don't have to be trades of actual aircraft between two parties; you can have deferred exchanges using a third-party intermediary. There are strict timing rules, rules defining what is and what is not "like-kind property", and rules restricting the amount of "boot" you can receive. You definitely need professional assistance to help you through the process. But if you can pull it off, a like-kind exchange does not create a current taxable gain on the exchange of aircraft. The amount that you would have recognized as gain would reduce the basis of the new property you received in the exchange, effectively deferring the gain recognition indefinitely.