Dec. 8, 2020

Through bonus depreciation, also known as immediate expensing, taxpayers placing qualifying property into service, including business aircraft, can continue to deduct the full cost of their investment in new and used property in the first year of operation.

Passage of the Tax Cuts and Jobs Act (TCJA) in 2017 modified and extended bonus depreciation, permitting taxpayers to deduct the full value of their capital investments until 2023 and at incrementally reduced rates through 2027. Through the efforts of NBAA and a coalition of general aviation groups, the TCJA also allowed owners of pre-owned and new property, including aircraft, access to bonus depreciation through to 2027.

Read more about the bonus depreciation provision in the TCJA.

“Immediate expensing is an effective and attractive proposition for anyone planning their taxes, but not everyone who is eligible for bonus depreciation can realize the full benefits,” said aviation tax expert Glenn Hediger, president, and founder of Aviation Financial Consulting. “Every aircraft purchase is an intricate transaction, so purchasers should work with a qualified team consisting of aviation focused tax and legal advisors before an acquisition to understand the potential pitfalls that regulatory operations or unrelated tax considerations could affect the full use of bonus depreciation.”

One of the most common challenges for an aircraft owner considering bonus depreciation is the passive loss limitation rules, said Hediger, as it may partially suspend deductions on aircraft not actively used by a taxpayer directly in their business, such as an aircraft leased to an air charter business or other unrelated interests. Non-business use may also limit the benefits in immediate expensing in the first year and the IRS’s minimum business usage requirement under its listed property rules must be met in subsequent year or a recapture of previous depreciation may occur.

Hediger also urged aircraft owners to be mindful that the TJCA’s elimination of deductions on all business entertainment costs and certain commuting benefits which could also impact a taxpayer’s enjoyment of the full benefits for first year bonus depreciation.

TCJA provisions on carryback losses and the limitation of losses that were suspended under the Coronavirus Aid, Relief, and Economic Security (CARES) Act also return on Jan. 1, 2021, Hediger added.

For more detailed explanations of the tax implications of aircraft ownership, please visit NBAA’s dedicated Tax Issues resources.

“Immediate expensing is an effective tool that stimulates business investment and supports the country’s economic growth,” said NBAA Senior Director, Government Affairs Scott O’Brien. “NBAA is steadfast in its support of efforts like the ALIGN Act introduced by Sen.  Pat Toomey (R-PA) that would make immediate expensing a permanent part of the tax code, and would bring certainty to business investments, boost employment and wages, and ensure growth for a business aviation industry that has proven its value to our economy.”

Read more on NBAA’s support of the ALIGN Act.