Dollar difference in bonus vs regular depreciation

What is the dollar difference between bonus depreciation and regular depreciation? Bonus depreciation is only available to purchasers of NEW aircraft that are placed in service during 2009. NEW aircraft may use bonus or normal depreciation. Normal depreciation must be used for pre-owned aircraft. To calculate a dollar difference for a specific example we must start with fixed assumptions for one case. We are attempting to show only the dollar difference of the “depreciation method”, therefore the only variable must be the “depreciation method”. This allows you to see the dollar difference for this one case. The assumptions are:
• The purchase price of both example aircraft is $1,000,000.
• The operating costs and resale values of the sample aircraft are the same.
• The tax bracket of the purchaser is 38%.
Table A shows both BONUS and NORMAL depreciation percentages using 5 Year and 7 Year MACRS.
Using the depreciation percentages from Table A, the dollar depreciation available for a $1,000,000 dollar aircraft is calculated and shown in Table B.
The actual tax advantage to the purchaser is calculated by multiplying the dollar depreciation amount from Table B times the purchaser’s tax bracket of 38%. The actual dollar tax advantage in each year is shown in Table C.
With the actual dollar tax benefit known in each year for each method of depreciation using both BONUS and NORMAL (Table C), the Net Present Value (NPV) of these four cash flows is calculated for each year using a discount rate of 7%. After the NPV is calculated for each year on each of the four cash flows, the NPV difference between the BONUS and NORMAL cash flows are shown in Table D. What do these numbers mean? The $19,576 in Year 6 of the 5 Year MACRS column means: If you use BONUS depreciation for $1,000,000 aircraft and hold it for six years, you have received the equivalent of a $19,576 check deposited in your bank account today versus $0 by using NORMAL depreciation. Remember, this compares the dollar NPV DIFFERENCE between BONUS and NORMAL depreciation methods, not the total dollar tax benefits of either aircraft.
This example assumes everything is the same EXCEPT the depreciation method. In the real world, this won’t happen. To really evaluate using BONUS or NORMAL depreciation requires preparing after tax cash flows, calculating the NPV of each cash flow, and then comparing their differences. AircraftCostAnalysis has the ability to do this analysis.
Please consult your tax advisor before making a decision on what type depreciation is best for your situation. www.AircraftCostAnalysis.com has details on performing aircraft cost analysis.