...GAMA Seeks Extension...

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Since then, one of the most-used tax benefits is the so-called "bonus depreciation" incentive that helps a taxpayer recover investment costs more quickly than before. That tax provision was enacted by the Jobs and Growth Tax Relief Reconciliation Act of 2003 last May and allows companies to depreciate an additional 50 percent of their new equipment in the first year of ownership. In order to qualify for the incentive, equipment must be purchased and placed in service before Jan. 1, 2005. According to the General Aviation Manufacturers Association (GAMA) it works. GAMA tells anyone who will listen that sales are up 43 percent in the first three months since bonus depreciation was increased to 50 percent and says that a recent survey of aircraft purchasers revealed that bonus depreciation is a deciding factor in a large percentage of sales. According to GAMA, 14 percent of survey participants chose to buy now rather than later, 5 percent opted to buy new rather than used aircraft and 3 percent bought a more expensive model of aircraft. Despite the seeming insignificant percentages cited by GAMA, the association last week said, to no one's great surprise, that an extension of bonus depreciation was needed, beyond the current Jan. 1, 2005, expiration date.

GAMA's rationale is that it generally takes manufacturers eight to 14 months to fill a customer's order for a business or charter aircraft, depending on model. This means that, for some models of aircraft, bonus depreciation will soon cease being an incentive for purchase. Unless the 50-percent bonus depreciation incentive is extended now, GAMA says that orders for new aircraft are likely to drop off precipitously -- particularly in 2004 -- effectively stalling the economic recovery the incentive was designed to foster. And that would be a bad thing. Importantly, GAMA contends, bonus depreciation does not increase the total "deduction" allowed companies buying new capital equipment but, instead, it "front loads" it. Look for more on extending bonus depreciation to come from the industry in the coming months.