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Tax Benefits for purchasing R9 in 2009

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    Posted: 03 Sep 2009 at 12:36pm

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


________________________________________________________________________


Potential Trade-in Value for Dual Garmin 430W $13,000 

________________________________________________________________________


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


________________________________________________________________________


Potential Trade-in Value for Dual Garmin 430W $13,000 

________________________________________________________________________


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



Edited by Avidyne - 03 Sep 2009 at 1:15pm
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