The Homa Files

Last week, we analyzed Pres Obama’s new target: corporate jet owners.

We said that the “loophole” was that corporate jets get depreciated over 5 years, whereas commercial aircraft (like Southwest’s) get depreciated over 7 years. So, the “loophole” is 2 years of accelerated depreciation … which is monetarily equivalent to about a 1% discount on the purchase price of of the jet. See the original post for the analysis.

But. a loyal HomaFiles reader quickly corrected my tax facts.

Turns out that in December, HR 4853 — the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 – was passed.

HR4853 allows businesses 100 percent accelerated depreciation of investments in capital assets — including new aircraft — through December 31, 2011, retroactive to September 4, 2010.

That changes the numbers …

The difference between depreciating a jet 100% in the first year and depreciating it over 7 years is monetarily equivalent to about a 3.3% discount on the purchase price of of the jet.

Example (table below): Assuming a million dollar capital expenditure, the NPV of the tax benefit of 100% accelerated depreciation is about $250,000 (@ an average corporate  tax rate of 25%) …  the NPV of the tax benefit depreciating the capital asset over 7 years is $214,489 … the difference is $33,011, which is 3.3% of the purchase price.

* * * * *

Here’s the irony …

HR 4853–  the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 – was initiated in the lame duck Pelosi-controlled Democratic House, passed by the Reid-controlled Democratic lame duck Senate, and signed by President Obama – ostensibly to create J-O-B-S.

Six months later, the President turns around and starts attacking a tax law that he and fellow Democrats enacted.

Then, they wonder why corporate America is sitting on $2 trillion in cash.

It goes beyond corporate jets.

They can’t keep changing the rules every couple of months just to score some cheap political points.

* * * * *

* * * * *

This entry was posted on July 5, 2011 at 6:39 am and is filed under Obama, Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.