In addition to clarifying the exemption of aircraft management services from FET (which I discussed in my February 9, 2018 post), the 2017 Tax Cuts and Jobs Act (the “Act“) also included several other provisions with a direct impact on business aviation:
- Repeal of 1031 Like-Kind Exchanges for Aircraft and Other Personal Property. Aircraft owners will now no longer be able to take advantage of the benefits of a Section 1031 like-kind exchange to defer the recognition of gain on an aircraft used in trade or business when it is sold and replaced with similar/like-kind property. However, if a 1031 exchange was initiated before 12/31/2017, then the exchange may still be completed. For tax planning purposes, it is anticipated that the advantage of the 100% expensing (at least until 1/1/2023) discussed below should offset the loss of the 1031 exchange mechanism.
- 100% Expensing of Purchase Price of Business Aircraft. Purchasers of business aircraft (e.g. purchase of an aircraft for use in the business) may now expense 100% of the purchase price subject to the following:
- Must be placed in service after 9/27/2017 and before 1/1/2023;
- No contract for purchase prior to 9/27/2017;
- Aircraft must still satisfy primary business use test; and
- Personal use must be imputed as income to an employee.
- A transition rule also allows a 50% deduction rather than a 100% deduction.
- Commuting Expenses Disallowed. An employer may no longer deduct the costs of reimbursing an employee for the expense of commuting on the company’s aircraft from the employee’s home to the place of employment, unless that transportation is provided for the safety of the employee. Employers may need to obtain security study/survey to support use of company aircraft for security reasons that are related to the employee’s safety.
- “Related to Business” Expenses Disallowed. Starting in 2018, a business will no longer be allowed to deduct entertainment, amusement, or recreation expenditures, even though they are directly related to business. Travel on the company aircraft with business customers, prospective clients before, during or after entertainment, is likely no longer deductible.
So, if you use business aircraft, you should familiarize yourself with the aspects of the Act that may impact your aircraft operations, for either the good or the bad. And, as always, if you have questions or need help, please contact me to Request a Consultation.