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2009 Depreciation and Tax Incentives for purchasers of Avidyne equipment
There are two VERY attractive Incentives in place during 2009 for customers purchasing Avidyne equipment. These Programs are due to expire at the end of 2009. As always, customers should consult their tax advisors to be sure of all parameters for their particular situation.
The Programs are:
a) “Section 179 Deduction”
Under this Program, businesses can deduct 100% of the cost of qualifying asset purchases, up to a total of $250,000.00. Yes, 100% can be written off … and airplanes used more than 50% for business are considered qualifying assets.
b) “Bonus Depreciation”
When the business surpasses $250,000 in asset purchases, the 100% deduction no longer applies. For capital purchases in excess of $250K up to $800K, a business can claim “bonus depreciation”. The bonus depreciation allows you to write off one-half the cost of the asset in the first year of the asset’s life, and the remaining half is depreciated over the item’s useful life.
Over-arching principles for both Incentive Programs are:
I. Definition of a capital asset in an avionics upgrade transaction:
Equipment that extends the life or adds value/functionality to the aircraft is a capital asset (as opposed to equipment that constitutes a repair/restored functionality). Installation cost is included in the value of a capital asset, as that cost is a necessary part of making the asset functional. See examples below.
II. Use of aircraft:
These programs apply ONLY to equipment installed in aircraft used for business purposes; generally meaning > 50% business vs. personal use
III. Treatment for equipment traded in:
Each customer’s tax situation is unique, so we should always advise that the customer contact their own tax advisor. What is important to know is that while the trade-in credit may reduce the customer’s tax “basis” in the new system, they also avoid any tax on the gain resulting from the favorable trade-in allowance on the old item. Thus, the real effect is the write off on the net cost of the new system plus savings on the trade-in (businesses generally pay a tax on the sale of business assets for a gain). Again, customers should consult with their own tax advisors.
The following show examples under these two Incentive Programs. For simplicity assume the item being traded-in has a zero basis for tax purposes. The examples are for R9, but these Incentives apply for all Avidyne equipment meeting the tests above.
a) Section 179 Deduction
Section 179 allows a business purchaser of qualifying assets to deduct, in the current year, 100% of the cost of those assets, up to a total of $250,000.00 in total asset purchases for the business during 2009.
Release 9 Example
R9 Price $72,800
Refundable Deposit (paid to Avidyne) $1,000
Balance Paid at Installation (to R9 approved installer) $71,800
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Potential Trade-in Value for Dual Garmin 430W $13,000
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Possible Cost assuming Customer obtained
Dual Garmin 430W Trade-in Value $58,800
Installation Kit $5,000
Installation Labor $15,000
Net Total Price to Customer $78,800
Add back Deposit $1,000
Depreciable Amount before trade-in calculation $79,800
$ savings on system, first year; assuming 35% effective tax rate $27,930
Savings on “Gain” from favorable trade-in assuming zero tax basis and a 35% effective tax rate ($13,000 less zero X 35%) $4,550
TOTAL real $$ savings, first year under Section 179 rules $32,480
This is what it looks like for R9 if the business is below the $250K threshold. If above $250K but below $800K, “Bonus Depreciation” is in play – see example below.
b) Bonus Depreciation
When a business has purchased more than $250K in assets but less than $800K in 2009, Bonus Depreciation can be employed. Bonus Depreciation allows 50% of the asset value PLUS the normal first-year depreciation to be deducted in 2009:
Example:
Release 9 Example
R9 Price $72,800
Refundable Deposit (paid to Avidyne) $1,000
Balance Paid at Installation (to R9 approved installer) $71,800
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Potential Trade-in Value for Dual Garmin 430W $13,000
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Possible Cost assuming Customer obtained
Dual Garmin 430W Trade-in Value $58,800
Installation Kit $5,000
Installation Labor $15,000
Net Total Price to Customer $78,800
Add back Deposit $1,000
Depreciable Amount before trade-in calculation $79,800
Depreciation and Tax benefit; first year:
Assumptions: 7 year life (14% normal write-off per year)
35% Effective Tax Rate
Bonus Depreciation (50% of installed cost) $39,900
Additional First Year Depreciation (14% - or 1/7 – of remaining value) $5,586
Total First Year Depreciation on system $45,486
$ savings on the system, first year assuming 35% effective tax rate $15,920
Savings on “Gain” from favorable trade-in assuming zero tax basis and a 35% effective tax rate (($13,000 X .5) + ($13,000 X .14) X .35) $2,912
Total real $$ savings, first year under “Bonus Depreciation” rules 18,832
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