Republicans and Democrats Can’t Agree on Terms of Tax Relief Bill for Aircraft Owners
100 % Bonus Depreciation
Since the Tax Relief for American Families and Workers Act of 2024 (HR 7024), that sought to bring back 100% Bonus Depreciation, was introduced to the House of Representatives on January 17, 2024, there has been much optimism that the bill would pass and reinstate some of the great tax benefits to businesses and aircraft owners that were eliminated by the Tax Cuts and Jobs Act of 2017.
With the current tax law, if you purchased an aircraft in 2023 (new or used), you would be eligible to deduct 80% of the purchase price of the aircraft in 2023 using Bonus Depreciation with the remaining 20% of the purchase price deducted over the next five years. If you purchase an aircraft in 2024 you may deduct 60% of the purchase price of the aircraft on your 2024 tax returns using Bonus Depreciation. The remaining 40% would be deducted over the next five years. In 2025, the Bonus Depreciation will be reduced to 40%, in 2026 – 20% and then there will no longer be Bonus Depreciation starting in 2027.
This bill is not insignificant to the aircraft industry as it would retro-actively reset Bonus Depreciation to 100% and postpone the phase-out, that was introduced in the 2017 TCJA, until the year 2026. The US has had Bonus Depreciation, either at the 50% or 100% level, since shortly after 9/11 when it was introduced as part of a stimulus package to incentivize the purchase of certain manufactured machinery. This accelerated depreciation strategy has been a key in saving manufacturers and their employees for almost two decades and the elimination of the tax benefit is certainly a blow to the global manufacturing community.
HR 7024 – What is the current status of the bill?
Besides the reinstated Bonus Depreciation benefit, the bill would also return to the more favorable method of adjusted taxable income as it relates to the limit on interest deduction imposed by Section 163(j) and would restore the ability to expense research and experimentation (R&E) costs retroactive to 2022.
However, the passing of the Fiscal 2024 Federal Budget without an agreement to include this bill in the budget compromise, leaves questions about whether the tax relief proposed in the bill will still be able to pass through the Senate as easily on its own as it passed through the House.
The bi-partisan bill flew through the House in a very short two-week time span and was passed in a 357-70 vote on January 31, 2024. However, the bill sat in the Senate without action from February 1st until its ‘First Read’ on March 20th. It has now been placed on the Legislative Calendar to be taken up by the Senate when Congress returns to work on April 8th, but that may not leave much time for the Senate to work out an agreeable deal between both parties.
More Political Games
Even though both parties have expressed a strong interest in getting this important tax legislation passed before the April 15th deadline imposed by Democrats, Senate Finance Committee Chair, Mike Crapo – R from Idaho has shown little interest in working with Democrats to get a deal done. Crapo has an issue with the child tax credit that would increase the amount of credit that is refundable and some other Republicans are reluctant to allow what could be perceived as a victory for Democrats by passing the bill.
Democrats appear to be in a ‘win-win’ situation whether the bill passes or not. If the bill passes it will be claimed as a ‘win’ for Democrats for pushing through the tax savings bill into law. However, if the bill fails, the Republicans would be blamed for blocking the bill by Democrats, which would also be a ‘win’ for the party. Once again, we are at the mercy of the two parties playing their never-ending game of one-upmanship instead of doing what is best for the Country.
We’ll share more information on HR 7024 when we hear anything about its progress.
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