Organization Hopes That Would Spur More Interest In GA Aircraft

Earlier this year, Congress passed the Jobs and Growth Tax Relief Reconciliation Act of 2003. It included a powerful incentive to purchase new capital equipment, including business aircraft. The incentive, known as “bonus depreciation” allows companies to depreciate an additional 50 percent of their new equipment in the first year of ownership. In order to qualify for the incentive, equipment must be purchased and placed in service before January 1, 2005.

It Works: Sales Up 43%

Wow. What a difference a tax break can make. In the first 3 months since bonus depreciation was increased to 50 percent, GAMA reports orders jumped a whopping 43-percent.

A recent GAMA survey of aircraft purchasers showed the 50 percent bonus depreciation was a deciding factor in large percentage of sales. According to the survey, the 50 percent bonus depreciation induced 14-percent of the survey participants to buy now instead of later, five-percent to buy new rather than used aircraft, and 3 percent to buy a more expensive model of aircraft.

GAMA: Extension Needed

Congress intended bonus depreciation to remain a powerful incentive for capital purchases through 2004. In reality, however, the effectiveness of the bonus depreciation incentive will end much sooner.

For example, it generally takes business aircraft manufacturers 8 to 14 months to fill a customers’ order depending on model. According to GAMA, the bonus depreciation will soon cease to be an incentive for the purchase of some types of aircraft.

GAMA says, unless the 50 percent bonus depreciation incentive is extended now, orders for new aircraft are likely to drop off precipitously—particularly in 2004. How critical is that? GAMA says it will effectively stall the industry recovery that began with enactment of the incentive this past May.

Budget Impact

Bonus depreciation does not increase the total amount of depreciation allowable to companies buying new capital equipment. Rather, it simply “front loads” the deduction.

The Joint Committee on Taxation has estimated a revenue impact of a one-year extension at $12 billion over 10 years. That figure assumes bonus depreciation will stimulate sales of capital equipment by more than $35 billion.

FMI: www.gama.aero