Dec. 5, 2022
With the phasedown of bonus depreciation beginning in 2023, NBAA’s Tax Committee has prepared a members-only resource to help answer questions with respect to claiming bonus depreciation during the phasedown period.
Bonus depreciation is a federal income tax incentive that allows a business to immediately deduct a large percentage of the cost basis of an eligible asset, such as an aircraft, instead of taking depreciation deductions ratably over the “useful life” of that asset based on the accelerated or straight line depreciation schedule that would otherwise apply to it.
On Dec. 22, 2017, the Tax Cuts and Jobs Act of 2017 (TCJA) was enacted, and provides for 100% bonus depreciation for the cost of qualified property acquired and placed in service after Sept. 27, 2017, and before Jan. 1, 2023. The TCJA includes an annual 20% phasedown of the 100% bonus depreciation deduction applicable to qualified property placed in service after Dec. 31, 2022.
In other words, qualified property acquired and placed in service in 2023 would be eligible for 80% bonus depreciation, followed by 60% in 2024, 40% in 2025, and 20% in 2026.
Generally, aircraft that are placed in service prior to Jan. 1, 2027, and meet certain requirements are eligible for a one-year delay of the annual 20% phasedowns with respect to bonus depreciation without entering into a written binding contract to purchase the aircraft in the year preceding the year the certain aircraft is placed in service.
For aircraft placed in service in 2027, the purchaser must enter into a written binding contract prior to Jan. 1, 2027, to purchase the aircraft to be eligible for the one-year deferral of the placed-in-service requirement in 2027.
The full resource, available to NBAA members, was prepared by Dan Feldman, David Shannon and Chris Younger. Shannon and Feldman are partners at Lewis, Brisbois, Bisgaard & Smith LLP, and Younger is senior counsel at Crowell & Morning LLP.