It’s Tax Season, and one of NAAA’s greatest services to the industry has been securing tax exemptions that save the aerial application industry millions of dollars each year—thousands of dollars for the smallest operators, and more depending on varying fuel use. Here are some of the exemptions you’ll want to take advantage of before April 15.
Bonus Depreciation and Section 179
Two deductions pertinent to many aerial application businesses are the bonus depreciation and section 179 business provisions. NAAA has been successful in allowing for a temporary 100% depreciation deduction through 2026 (and through 2027 for longer production period property and certain aircraft).
The maximum amount an individual can deduct for new asset purchases, like an ag aircraft, has been raised to is $1,050,000 in 2021, subject to some limitations. The section 179 tax provision allows a taxpayer to deduct the cost of certain new or used property placed in service for the year rather than depreciate those costs over time. The provision also expands the definition of qualified real property eligible for section 179 expensing to include any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service:
- Roofs.
- Heating, ventilation and air conditioning property.
- Fire protection and alarm systems.
- Security systems.
This provision applies to property placed in service after Dec. 31, 2017.
You can read more about section 179 and bonus depreciation for your 2021 filings at irs.gov/pub/irs-pdf/i4562.pdf.
The Fuel Tax Exemption
Due directly to the efforts of NAAA, the aerial application industry has been fortunate since 2005 to qualify for a waiver for fuel excise taxes levied on aviation fuels. It is estimated that the fuel tax exemption saves the average operator over $15,000 per year. The law includes relief for fuels burned while ferrying to and applying to cropland. The current IRS reference that explains the rules and procedures to take these fuel tax credits and refunds can be found at irs.gov/pub/irs-pdf/p510.pdf.
As has been the case for many years, the rules differ according to the type of fuel used. For aviation gasoline (avgas), an aerial applicator may claim a tax credit as the ultimate purchaser of the fuel but cannot claim a refund. For Jet A, the ultimate purchaser (you if you are purchasing fuel) may either make the claim or waive the right to make the claim to a registered ultimate vendor or fuel supplier who may then sell it to you tax-free. Many applicators find it easier to waive the right to your fuel supplier, and the fuel supplier provides the fuel federal tax-free. Check with your fuel supplier to see if they are willing to do this. If not, you may apply for a tax refund directly with the IRS. A sample waiver is provided in Publication 510 and can be found at tiny.cc/irs-model-waiver-L. The specific forms regarding the credits and claims on aviation gasoline and kerosene can be found respectively at irs.gov/pub/irs-pdf/f4136.pdf and irs.gov/pub/irs-pdf/f8849s1.pdf.
NAAA has worked hard to ensure that Congress and the IRS continue to offer these valuable tax benefits to aerial applicators, and we once again encourage applicators who wish to take advantage of these special tax treatments to contact their accountant or financial adviser to get the most pertinent information for your business.
