They are not "saving" the cost. If they believe that, they are deluding themselves.

What they are doing is moving taxes to future years. Granted the dollars will be worth a little bit less in those years, but the numerical tax amount is the same.


For a 5 year property like aircraft under part 91, the tax savings are not very big, maybe you save 5% of the purchase price in the end.

100% bonus depreciation:

Year 1: 100%

5 year property otherwise:

Year 1: 20%
Year 2: 32%
Year 3: 19.2%
Year 4: 11.52%
Year 5: 11.52%
Year 6: 5.76%

The 5 year is front loaded, so the depreciation schedule is not particularly painful.

If an owner ends up in a higher tax bracket in later years, due to lacking the depreciation and/or increase in income, the bonus depreciation can be a negative net value.

Mike C.

But if you take that tax savings and invest it, you can come out quite a bit ahead. Time value of money.

You also pay taxes on that capital gains.

It is very hard to win big on 100% bonus depreciation on 5 year property due to the front loading of the schedule.

The real win is not the money early, it is the lock in at 100% "business use" for the first year, and then no recapture if you maintain at least 50% in subsequent years. For anybody who has a mix of business and personal use, being able to suffer 100% business use the first year (which might be only a few weeks if bought late in the year), then you are golden for mixed use the rest of the ownership even if that is 49% personal use.

None of this applies to 100% personal use.

Mike C.

Mike, you only pay the taxes IF you sell the airplane.

It’s almost like you’re trying to make yourself feel better about not having the ability to buy a $5M airplane.

The majority of our clients who use Bonus Depreciation, do so in the same year that they sell their company. If you sell Ciholas, Inc. I bet you’ll buy an airplane and use bonus depreciation to offset those taxes!

If you don’t have a big year, you are exactly right, it makes more sense to do straight line depreciation.

Philosophical diatribe below:

Chip you're having too much fun. Please don’t mix “can't” with “won’t” to buy a $5 million dollar plane when referencing our friend. You have either not done your homework or aren’t really listening to him over the years. I enjoy the banter but let’s not go too far

If he wants to refute my conjecture vs yours I can live with that too.

PS I can afford a CJ4+ and to flirt with JC in it.(not inverted) I choose not to. Yes tight, frugal, hard headed and damn tight.. Did I already say that? Yep I’m tight and having “fun" flying local and nice seats on the airlines to travel. If anyone is confused see the first three words in sentence 3, this paragraph.

PSS; Why, oh why did I decide to post this? Pissed working on taxes perhaps. Keep at it boys. TBM is a joy to fly. Jets too. Fast, slow, high, low and everywhere in between.

I don’t think that is necessarily true.

Signal seems to get through my heated windshields. Now, the edges are still blocked by aircraft structure around the windows, but it seems to work through the electric heat elements.

But I admit my understanding of the physics of this is limited.

Well said my friend.

I don’t think that is necessarily true.

Signal seems to get through my heated windshields. Now, the edges are still blocked by aircraft structure around the windows, but it seems to work through the electric heat elements.

But I admit my understanding of the physics of this is limited.

This forever conversation assumes these decisions are about what is the best use of money. In life it’s also about enjoying the thing that makes us happy during the limited number of solar orbits till our life expires. Everyone in this forum has more money than the average citizen in the world. If someone wants to buy a new airplane, car, piece of furniture, or an ice cream cone and can afford it they should do so.

When Mike C makes the point about cost of capital besides being irrelevant for many buyers (see above) remember the opportunity cost of the capital is greatly reduced by the tax deduction. In NY I would have given about 55 percent of that capital to the government. Yes I know about recapture but that’s depreciation not cost of capital. My opportunity cost on capital is only about half the interest rate. If the capital is actually borrowed that’s another deduction.

Right now I am spending a stupid amount to build a hangar. Does it make business sense, no. In another 10 years or so I won’t be able to fly anymore due to age. I want to enjoy it while I can. That is what motivates people to buy airplanes. Fortunately it motivates them to buy cars and trucks which is how I pay the bills.

Bonus Depreciation is also the ultimate excuse to buy an expensive toy.

It is a form of justification.

Mike is a pilot’s pilot, he figures out how to fly the most for the least. I admire that. There are a lot of people that couldn’t care less about the cost and just want to spend money and GO!

Its a form of welfare.

Its a form of welfare.

Recapture. You don't have to give part or all of welfare back. More like a low interest loan.

Exactly.

The people I worked for invested the savings back into their businesses which produced rates of return far in excess of typical long term stock market returns.

They needed a biz jet to manage their real estate developments spread across the country.

Personal use? These were business assets used extensively in the conduct of the business, flown by full time professional crews and maintained to high standards.

So an owner buys his $12mm jet. Instead of paying massive Federal and State taxes he gets tax savings immediately to cover nearly half the acquisition cost. That gets invested right back into his business often producing cumulative compounded long term rates of return in excess of 15%. At times far in excess of 15%.

Meanwhile he uses the jet to travel to his projects, keep them moving forward, meeting with his partners, bankers, etc. and of course to negotiate new deals.

Could it be done cheaper? Sure. Does he want a used aircraft requiring more maintenance that doesn’t have the latest greatest avionics? No.

Would he write off the aircraft in 5 years anyway? Sure, but he needs the cash NOW because he is investing in his business.

I realize others may not be in a situation to benefit and there is certainly an argument to be made as to how beneficial these accelerated deductions really are to society as a whole, but I didn’t write the law.

We would be naive to think it did not stimulate investment. It does.

What a ridiculous statement.