Looks like you bought N45AF 4 years ago. 2025 will be the 5th year in service.

The MACRS schedule for part 91 aircraft (per NBAA):

Year Percentage Deduction
1 20.00%
2 32.00%
3 19.20%
4 11.52%
5 11.52%
6 5.76%

You should be 94% depreciated at the end of this year.

If you sold now, you are basically showing a capital gain of nearly all of the sales price. If you sell in 2026 or later, it will be 100%.

What big expense are you avoiding?


Not taking depreciation is paying more taxes in the present and devaluing future deductions.

I'm trying to understand your strategy and where the benefit is.

Mike C.

I understand the rig owner lost $500K the first year and is being asked to pay taxes on a phantom $400K profit because he is being taxed on $900K of residual rig value.

You can use all the terminology you want, but that doesn't increase the numbers in the bank account. I keep asking you where the $400K "profit" is and you keep not answering, because you know it doesn't exist.

Depreciation screws the taxpayer. That's crystal clear. The taxpayer ends up paying taxes on phantom profits they don't have, and the future deductions are less value than the true cost of the machine.

Mike C.

Looks like you bought N45AF 4 years ago. 2025 will be the 5th year in service.

The MACRS schedule for part 91 aircraft (per NBAA):

Year Percentage Deduction
1 20.00%
2 32.00%
3 19.20%
4 11.52%
5 11.52%
6 5.76%

You should be 94% depreciated at the end of this year.

If you sold now, you are basically showing a capital gain of nearly all of the sales price. If you sell in 2026 or later, it will be 100%.

What big expense are you avoiding?


Not taking depreciation is paying more taxes in the present and devaluing future deductions.

I'm trying to understand your strategy and where the benefit is.

Mike C.

Let’s just say, for arguments sake, that every business invested all of their profits back into the business under the tax ideology that Mike believes in.

What would happen?

Looks like you bought N45AF 4 years ago. 2025 will be the 5th year in service.

The MACRS schedule for part 91 aircraft (per NBAA):

Year Percentage Deduction
1 20.00%
2 32.00%
3 19.20%
4 11.52%
5 11.52%
6 5.76%

You should be 94% depreciated at the end of this year.

If you sold now, you are basically showing a capital gain of nearly all of the sales price. If you sell in 2026 or later, it will be 100%.

What big expense are you avoiding?


Not taking depreciation is paying more taxes in the present and devaluing future deductions.

I'm trying to understand your strategy and where the benefit is.

Mike C.

Businesses would find it difficult to raise equity capital, publicly traded and private securities would collapse in value and we would eventually end up in a system where the only thriving businesses were single proprietorships or partnerships with few members of mega conglomerates in every conceivable industry.

Why? Because they would have too strong of an incentive pour every penny back into the business and not have profits, which also means never distributing profits to shareholders.

You talk about the power of the tax code to influence behavior, and you are 100% correct, but you can get good and bad behaviors. Encourage investment in growing the business to increase the tax base and grow the economy = good. Encourage businesses to invest every penny to avoid taxes on cash flow, leading to bad investments, and no return to the owners = bad. That is why bonus depreciation works great as a temporary tool, but would need some offsetting regulations if it were to become permanent.

So there is a $1M phantom "profit" here. The operator is being taxed on the $1M value of the equipment as "profit" when no such money actually exists.


Same as above except the machine is $900K value and added to "profit".


This is fair, it reflects the true profit the company actually has from its operations.

It doesn't matter what you want to call the dollars, either you have them or you don't. In the first two cases, the operator is paying taxes on money he doesn't have because the machine value (either 100% undepreciated in the fist case, or 90% undepreciated in the second case) is counted as "profit".


You mean actually tax people on the true profit and not some fictitious funny number accountants think? Yeah, that would be fantastic!

When they sell their machines, they get capital gains. You get money, you pay tax, that is how it should be.

Taxing an operator for $400K of "profits" he doesn't have is not good for business or the country.


Business should only be taxed on profits, the real profits.

Machines ARE NOT INVESTMENTS, they are expenses that happen to have service lives more than one year. They are not bought with the idea they gain value, that would be an investment.


Business is about making a profit, personal use is about consumption. A business only makes money when it brings in more than it spends. It should be taxed on that basis alone. Taxing a business on "profits" it didn't make is profoundly stupid.

Personal use has no profit motive. It is purely consumption. Not comparable.


No, it is a way to add the undepreciated value to the "profits" and tax money the business didn't make, and also never fully offset the business revenue for the true value of the machine.

Machines are not investments, they are consumables and an expense to running a business.

With deprecation, a business could be shown to have "profit" when they, in fact, never made any money at all during their entire existence.

Ask any investor to buy you an airplane on the premise it is an "investment". They will all turn you down. Duh!

Depreciation: a system of penalizing businesses by counting the undepreciated cost of the machine as income and never fully recovering the cost of the machine over time due to inflation.

Mike C.

As I said, no point in having a discussion with someone who simply cannot accept that cash-flow and profit are not the same thing.

Shareholders wouldn't stand for that and there's not enough stuff they can buy with their profits to zero it out. The objective is to make a profit and that won't go away.

It isn't nearly as big a change as Matt thinks it is. Depreciation is happening all the time on the books so ON AVERAGE, the cost of machines is being taken off every year already. The 10 year old machines, the 9 year old machines, the 8 year old machines, etc., all add up to effectively one machine in this year. So the steady state case isn't that much different.

The benefit is now companies won't be penalized for time value lost in money on their equipment, which is more fair, and startup situations would benefit the most from not having to pay taxes on machine value. It will encourage capital intensive businesses to get started, which are now heavily penalized. There would be more willingness to invest in longer horizon objectives instead of encouraging short term thinking.

We have basically 100% expensing of aircraft with bonus deprecation. Did that cause any collapse? No. Saying so is a scare tactic.

Mike C.

I argue that profit should not include the undepreciated value of machines.

You say profit should include the undepreciated machine value and taxpayers should pay taxes on that as if it was income.

I think taxing people who made no money is wrong.

Mike C.

As long as the taxes apply only when you actually made money.

Otherwise, not good.

Mike C.

Businesses would find it difficult to raise equity capital, publicly traded and private securities would collapse in value and we would eventually end up in a system where the only thriving businesses were single proprietorships or partnerships with few members of mega conglomerates in every conceivable industry.

Why? Because they would have too strong of an incentive pour every penny back into the business and not have profits, which also means never distributing profits to shareholders.

I argue that profit should not include the undepreciated value of machines.

You say profit should include the undepreciated machine value and taxpayers should pay taxes on that as if it was income.

I think taxing people who made no money is wrong.

Mike C.

I argue that profit should not include the undepreciated value of machines.

You say profit should include the undepreciated machine value and taxpayers should pay taxes on that as if it was income.

I think taxing people who made no money is wrong.

Mike C.

That isn't really true. While GAAP accounting has a lot of similarities, I am talking about tax accounting not only as it works in the US but also most other countries as well. Tax accounting is largely cash based, but it still has differences between cash-flow and profits.

I understand Mike's position well. It's based on a business owner wanting to pay as little in taxes as he possibly can. It's rather common amongst the business owners I work with day to day, but they almost all know the difference between profits and cash-flow.