Leading Bizav Group Praises IRS Bonus Depreciation Proposal

The National Business Aviation Association is praising an IRS notice of proposed rulemaking (NPRM) on tax-law changes surrounding bonus depreciation, saying the notice incorporates key recommendations from the association.

Released earlier this month, the proposal stems from a provision in the Tax Cuts and Jobs Act passed late last year that extends and modifies bonus depreciation. The law provides for 100 percent bonus depreciation for qualified new and used property acquired and placed into service after Sept. 27, 2017, and before Jan. 1, 2027. Beginning in 2022, the tax measure phases down the amount of bonus depreciation by 20 percent each year through Jan. 1, 2027.

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The NBAA called the measure a significant legislative victory, not only for the extension of bonus depreciation but also for the applicability to used property for the first time. Since the measure's passage, the NBAA requested guidance on the definition of “previously used” because the legislation includes a stipulation that preowned property qualifies only if it was not previously used by the taxpayer. The NBAA maintains that incidental uses—such as a demonstration flight or charter operation before a purchase of an aircraft—should not disqualify the purchase from bonus depreciation.

The NPRM clarifies that “the property is treated as used by the taxpayer or a predecessor at any time before its acquisition of the property only if the taxpayer or the predecessor had a depreciable interest in the property at any time before the acquisition.”

John Hoover, a partner at Holland & Knight and vice chair of the NBAA’s Tax Committee, said the IRS's proposed definition of "previously used" is very taxpayer-favorable. The NBAA added that the proposal broadens the types of transactions that qualify, such as if an organization leased an aircraft from an owner and then bought it.

The IRS also clarified that an aircraft is considered acquired when the taxpayer enters into a binding written contract, regardless of when production of the aircraft may begin.