Page 24 - Demo

Impact of New Tax Bill on Aircraft Values
by Pablo Perez and John T. Van Geffen
It is difficult, if not impossible, to isolate the exact impact of the new tax bill on aircraft values. There are many concurrent factors that may have an impact on aircraft values e.g. the economy, regulatory environment and inventory, to name a few. However, we can observe what has been
going on in the market since the enactment of, “Tax Cuts and Jobs Act of 2017” (Pub.L.115-97).
How was the pre-owned business aviation market doing before the tax changes?
Excessive enthusiasm with the economy before the subprime crisis was certainly a factor in manufacturers flooding the market with new aircraft. Since the crisis, OEMs reduced the general production but the number of new models has increased. We also have new competitors such as Honda and Pilatus entering the business jet market. The accumulated oversupply is still present in the pre-owned aircraft market. These factors have driven down prices for the pre-owned market, permitting buyers to acquire quality aircraft at a considerably lower price.
This tendency may change given the new tax law. There is already some information about changes in aircraft values, but before we look at that, we want to summarize the tax changes affecting the industry.
What are the tax changes that will have an impact in business aviation?
As reported by the Congressional Budget Office (CBO), high net wealth individuals, pass-through entities and corporations should benefit immediately. While the current number of tax brackets has been retained, each has been reduced, and for those operating an entity with pass-through income, there is a new 20 percent deduction for business income.
For aircraft owners, the savings under the new law are even better. The current bonus depreciation has been amended to provide for 100 percent expensing of the cost of new and pre-owned aircraft (up from 50 percent) acquired and placed in service, provided it is the taxpayer’s first use of the aircraft. Previously, bonus depreciation was only available on new equipment purchases.
Unfortunately, for those who previously used Rev. Code §1031 ‘like-kind’ exchanges (usually for upgrading into larger or longer range aircraft) taxpayers will no longer have the ability to defer taxable gains on the sale of aircraft. In theory, the enhanced depreciation discussed above should offset the repeal of like-kind exchanges for aircraft.
22 • TWIN & TURBINE
June 2018