October 4, 2010
By Edward H. Kammerer

This publication was not prepared by or under the direction of Columbia Avionics & Aircraft Services, Inc. It is being provided to NBAA Members and our customers for their general information and should not be construed as legal advice or legal opinion on any specific facts or circumstances. You are urged to consult your attorney or other advisor concerning your own situation and for any specific legal questions you may have.

The Small Business Jobs Act of 2010 significantly increases limits on the amounts of capital expenditures which may be deducted as current expenses in 2010 and 2011. However, due to various limitations, not all business aircraft owners will be able to take advantage of this new benefit. This provides some practical considerations for taking advantage of the new Section 179 rules.

Expensing under Section 179

As a general rule, expenses that are deductible on a current basis are more valuable to a taxpayer than expenses which must be capitalized and deducted over an extended period of time. For example, a $100 deduction in the current year is more valuable than the same $100 deduction spread over a five year period. However, the acquisition costs of a capital asset, such as an aircraft, must generally be depreciated over a set period of time rather than currently expensed. Section 179 of the Internal Revenue Code provides a limited exception to this rule. Under the new Section 179 rules, a taxpayer is permitted to deduct up to $500,000 of the cost of a capital asset as a current expense. This benefit is limited. To the extent that the taxpayer acquires capital assets in excess of $2,000,000 in the taxable year, the $500,000 benefit phases out on a dollar for dollar basis for each dollar spent on capital acquisitions in excess of $2,000,000. For example, Taxpayer A acquires a piston aircraft in 2010 for $500,000. Taxpayer A has 2010 capital acquisitions, including the aircraft, totaling $2,200,000. Taxpayer A’s Section 179 benefits will be reduced for each dollar spent on capital acquisitions above $2,000,000. Thus, Taxpayer A’s Section 179 calculation will be as follows: $2,200,000 spent for capital acquisitions minus the statutory ceiling of $2,000,000 results in a reduction in the Section 179 benefit equal to $200,000. As such, Taxpayer A will be limited to $300,000 of Section 179 benefits in 2010. If Taxpayer A’s total capital asset acquisitions in 2010 equal or exceed $2,500,000, the Section 179 benefit is lost entirely.

As the foregoing illustrates, the Section 179 benefit is valuable only to taxpayers with limited capital acquisitions. Taxpayers that acquire a turbine aircraft may well exceed the capital asset limitation of $2,000,000 simply by virtue of the acquisition of the turbine aircraft. Nevertheless, the benefit may be extremely useful for purchasers of piston, light jet, fractionally owned or older aircraft and for aircraft operators who have limited capital asset acquisitions in a given year. For example, a turbine aircraft owner who replaces an engine, acquires an avionics upgrade, paints their aircraft, refurbishes the interior, acquires a tug or builds or upgrades a hangar may qualify for Section 179 treatment with respect to such acquisitions.

Section 179 is only available for property eligible for accelerated MACRS depreciation. In order for property to qualify for MACRS, an asset must be used more than 50% for business purposes and may not be used predominantly outside of the United States . Readers should also note that there is no requirement that the asset acquired be “new”. Any pre-owned asset, including an aircraft, can qualify for Section 179 treatment. Note should also be taken of the fact that Section 179 expensing can be utilized in connection with Bonus Depreciation. (See companion article on Bonus Depreciation). For example, the first $500,000 of the cost of a new $700,000 aircraft could be expensed and, assuming that the other requirements for Bonus Depreciation eligibility are met, the remaining basis of $200,000 could be eligible for Bonus Depreciation treatment.

Conclusion

The Small Business Jobs Act of 2010 provides some significant benefits for business aircraft owners. In creased limits on the Section 179 expensing benefit may prove useful to purchasers of less expensive aircraft and for the acquisition of aircraft related equipment. Please note that the amount of the Section 179 deduction and the capital expenditure limits are significantly lower for years prior to 2010 ($250,000/$1,000,000 for years 2007 to 2009) and after 2011 ($25,000/$200,000).

For Immediate Release:

Columbia Avionics & Aircraft Services, Inc. located in Columbia, Missouri is proud to announce that they have acquired Skytek, Inc. of Fulton, Missouri. Skytek offers a wide range of aircraft maintenance services, including engine overhauls, cylinder repairs, fuel system set ups, annual inspections, and propeller balancing. Industry wide known engine expert Bob Moseley will remain on the staff and will be responsible for the daily operations.  Lance Fox, President of Columbia Avionics & Aircraft Services, Inc. stated “I am extremely happy to announce the additional services and capabilities that we will now be able to offer with this acquisition. Mr. Moseley’s expertise will be a great asset. Bob spent many years as a field service rep for Teledyne Continental Motors and is well known for his TCM and fuel system set up knowledge. We look forward to serving his existing customers as well as offering the additional capabilities to our great customer base. Very few companies can offer the total services that what we can now.”

ABOUT COLUMBIA AVIONICS & AIRCRAFT SERVICES, INC.:
Columbia Avionics & Aircraft Services, Inc. has extensive experience modifying piston and turbine powered aircraft. Columbia Avionics & Aircraft Services, Inc. holds numerous avionics STC’s. The company offers full avionics and airframe services, including heavy maintenance on many different models of aircraft. For more information about our capabilities, please contact us at (573) 874-4141 or visit http://www.columbiaavionics.com/.