The 2017 Tax Cuts and Job Act (”TCJA”) brought many benefits to American businesses, including commercial aircraft owners and operators. One such benefit was the settling of an issue between aircraft management companies and the IRS regarding the application of the Federal Excise Tax (“FET”) to aircraft management services. The TCJA carved out a FET exemption for aircraft management services related to the maintenance and support of an owner’s aircraft or flights on an owner’s aircraft, with the following activities marked as exempt from the FET:
- Aircraft support activities (fueling, maintenance, storage, etc.)
- Aircraft operations (pilot and crew hiring and training)
- Administrative services (obtaining insurance, scheduling, flight planning, weather forecasting, safety compliance activities, etc.)
- Other necessary services to support flights operated by an aircraft owner
These exemptions from the FET are only available when attributable to flights on an aircraft owner’s aircraft. Services for other aircraft are still subject to the FET. Aircraft lessees are also eligible for the FET exemption if the lease is for a term of more than 31 days and the aircraft is not leased from the aircraft management company or related entity.
Several other TCJA provisions also have an impact on business aviation, including:
100% bonus depreciation. Now applies to both new and pre-owned aircraft. In effect until 2022, when it will begin to phase out at 20% annually. Also applies to improvements to existing aircraft.
Increase in Section 179 expensing to $1 million. Section 179 provides another avenue for depreciating the purchase of a business aircraft or making improvements.
Entertainment use of business aircraft no longer deductible. Beginning in 2018, tax deductions for the entertainment use of a business aircraft are no longer allowed, even if the expenditures were directly related to the business.
Section 1031 like-kind exchange for business aircraft eliminated. Prior to the enactment of the TCJA, aircraft owners could defer gains on fully depreciated aircraft when it was sold and replaced with like-kind equipment. TCJA eliminated the applicability of Section 1031 exchanges for business aircraft and equipment.
When you are facing any type of business litigation, you need an experienced Arizona trial attorney to obtain the best possible result. Contact Williams Commercial Law Group, L.L.P., at (602) 256-9400 to speak with us about your case.