Bonus depreciation extension for certain aircraft (excluding the transportation industry).

Prior to the American Jobs Creation Act of 2004 (AJCA), a special rule under Sec. 168 limited the amount of costs eligible for additional first-year depreciation, for property eligible for the extended placed-in-service date (i.e., certain property with a recovery, period of 10 years or longer

New Law

AJCA Section 336 extends the bonus depreciation provisions for certain noncommercial aircraft placed in service prior to 2006. To qualify for this provision, the aircraft must:

* Be acquired during the applicable period under Sec. 168(k)(2)(A);

* Satisfy the placed-in-service requirements;

* Not be tangible personal property used in the trade or business of transporting persons or property (except for agricultural or firefighting purposes);

* Be purchased (as defined in Sec. 179(d)(2)) by a purchaser, who at the time of the contract t-or purchase, has made a nonrefundable deposit of the lesser of 10% of the cost or $100,000; and

* Have an estimated production period exceeding four months and a cost exceeding $200,000.

Effective Date

The provision is effective as if included in the Job Creation and Worker Assistance Act of 2002, which applies to property placed in service after Sept. 10, 2001.

Implications

Taxpayers considering the purchase of an aircraft for use in a trade or business (assuming such business is not the commercial carrying of passengers or freight) have an additional year to acquire and place the airplane in service. Unlike the current extended placed-in-service date for property with long production periods, this provision permits bonus depreciation on amounts paid or incurred after 2004 and before 2006.

FROM JANE ROHRS, WASHINGTON, DC