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Do You Qualify for Bonus Depreciation?
2022 is the last year used aircraft acquisitions will qualify for 100% bonus depreciation.
How to Qualify for Bonus Depreciation
IMPORTANT: 2022 is the last year used aircraft acquisitions will qualify for 100% bonus depreciation. Eligibility for 100% bonus depreciation under the current regulation requires that used aircraft be placed-in-service before the end of 2022 and new aircraft be placed in service before the end of 2023. The percentage of bonus depreciation an aircraft owner can take will begin to step down beginning in 2023 for used aircraft and 2024 for new aircraft. The table below further illustrates the step downs each year for new and used aircraft.
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2022
2023
2024
2025
2026
2027
Used Aircraft
100%
80%
60%
40%
20%
n/a
New Aircraft
100%
100%
80%
60%
40%
20%
Basic Requirements to Qualify
Under the Tax Cuts and Jobs Act (“TCJA”) and subject to the table above, taxpayers may be eligible for 100% bonus depreciation and take an immediate deduction of the entire cost of an acquired aircraft if certain requirements are met, including the following:
The commercial or non-commercial aircraft qualifies as depreciable property with a recovery period of 20 years or less
The aircraft cannot have been used by the taxpayer prior to its acquisition by the taxpayer
The aircraft is placed in service by the taxpayer after Sept. 27, 2017 and before Jan. 1, 2027
Additional Requirements
For an aircraft to qualify for bonus depreciation, the aircraft must also be eligible for depreciation under the Modified Accelerated Cost Recovery System (“MACRS”) . The two main requirements for MACRS depreciation are as follows:
1. The use of the asset is predominately within the United States.
“Predominant use within the U.S.” is interpreted to mean what it says; the predominant use of the aircraft must have been for flights within the U.S. On this point, it is vital for those aircraft owners who frequently fly internationally to have detailed records of use.
2. The aircraft must satisfy the IRC 50% Qualified Business Use Test.
“Qualified business use” is well-defined as any use in the taxpayer business. However, there are a few exceptions, including leases or compensatory flights to a 5% owner and related parties. There are exceptions to these exceptions, however, which provide that that so long as at least 25% of the flight activity of the aircraft is for core business operations and qualified business use, then the company can include compensatory flights and other flights for leasing to a 5% owner and related parties in calculating the 50% Qualified Use Business Use Test.
If you fail the 25% test or pass the 25% test but cannot meet the overall 50% test, you do not qualify for bonus depreciation. If you pass both tests, you generally qualify for MACRS accelerated depreciation and can take bonus depreciation.
Beware of Exceptions
The above requirements for bonus depreciation should be viewed as general rules, and the IRC contains a number of different exceptions to these general rules. For example, as noted above, IRC § 280F limits depreciation for aircraft leased to related parties or used personally by employees. In addition, IRC § 274 limits depreciation for personal entertainment use. This article does not contain or evaluate all of the exceptions, and you should consult your tax advisors or legal counsel to determine whether you qualify.
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