Purchasing and placing a business aircraft into service in 2025 can generate immense income tax savings. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, which permanently restores 100% bonus depreciation for qualifying aircraft and enhances Section 179 expensing.
IMPORTANT: Prior Law (Before OBBBA) Before this legislation, bonus depreciation had dropped to 40% in 2025, would have dropped to 20% in 2026, and been eliminated altogether in 2027 under the Tax Cuts and Jobs Act (TCJA) of 2017. OBBBA eliminates that phaseout schedule and makes the 100% deduction permanent for qualifying aircraft.
What 100% Bonus Depreciation Means
Taxpayers who meet the business use qualifications and related requirements may now deduct 100% of the acquisition cost of a new or pre-owned aircraft placed in service on or after January 20, 2025.
Prior Law (Before OBBBA)
Before this legislation, bonus depreciation had dropped to 40% in 2025, would have dropped to 20% in 2026, and been eliminated altogether in 2027 under the Tax Cuts and Jobs Act (TCJA) of 2017. OBBBA eliminates that phaseout schedule and makes the 100% deduction permanent for qualifying aircraft.
What Enhanced Section 179 Expensing Means
Section 179 expensing limit doubled to $2.5M for 2025, with eligibility for aircraft costing up to $6.5 million. This offers an alternative to bonus depreciation for taxpayers seeking flexibility in managing deductions.
Strategic Considerations
Taxpayers who placed their aircraft into service before January 20, 2025 will require careful analysis to determine the amount bonus depreciation they qualify for at time of delivery.
As a result of these changes, business aircraft owners can continue using bonus depreciation and § 179 Expensing as powerful tools to reduce tax liability, improve cash flow, and strengthen their balance sheets through strategically structured aircraft transactions.
Requirements to Qualify for Bonus Depreciation
Taxpayers are generally required to deduct the cost of property used in a trade or business over a period of time. However, in the case of certain “qualified property” (including most equipment and machinery, such as aircraft), a taxpayer is permitted to deduct a percentage of the cost in the first year that property is placed in service (this is referred to as “bonus depreciation”).
5 General Requirements to Claim Bonus Depreciation for Qualified Property:
1. No Prior Use of Aircraft: The taxpayer cannot have previously used (e.g., leased, owned or chartered) the aircraft;
2. Must Be Placed in Service by Year-End: The aircraft must be placed in service in furtherance of an active trade or business no later than December 31 of the applicable year;
3. Predominant Use Within the U.S.: The aircraft must be used predominantly (more than 50%) within the U.S., and this must continue throughout the taxpayer’s ownership of the aircraft or the IRS will recapture the bonus depreciation previously allowed; and
4. Predominant Business Use Requirement: The aircraft must be used predominantly (more than 50%) for business use, and this too must continue throughout the taxpayer’s ownership of the aircraft.
5. Annual Qualified Business Use Thresholds: Each year throughout the taxpayer’s ownership the aircraft must be used at least 25% of the time for Qualified Business Use (QBU), and at least 50% of the time for total business use (e.g., predominate business use described in item 4, above).
When measuring hours for the 25% QBU threshold, the taxpayer must generally exclude from the calculation any leases or compensatory flights to a 5% owner and related parties (other than leases between the aircraft lessee (e.g., operating entity) and its disregarded subsidiary aircraft owner/lessor). Compensatory flights are generally those for which fringe benefit income is imputed.
If a taxpayer fails the 25% QBU test or passes the 25% QBU test but cannot meet the overall 50% predominate use test, the taxpayer will not qualify for bonus depreciation. If the taxpayer passes both tests, it generally qualifies for MACRS accelerated depreciation and can take bonus depreciation.
Insights to Consider
By incorporating the following practical insights, taxpayers can better navigate the complexities of aircraft bonus depreciation and optimize tax benefits while minimizing risks.
Detailed Record-Keeping
Maintaining meticulous records of aircraft usage is crucial. This includes logs of flight hours, destinations, and the purpose of each flight. Detailed records help substantiate the business use of the aircraft, which is essential for meeting the 50% business use requirement and defending against IRS audits.
Tax Planning for Mixed Use
If the aircraft is used for both business and personal purposes, careful tax planning is necessary. Personal use can complicate the ability to sustain bonus depreciation deductions. Strategies such as limiting personal flights in the first year, and periodically (quarterly or semi-annually) evaluating use can be crucial to maintain the required business use percentage throughout the taxpayer’s ownership.
Understanding Depreciation Recapture
Be aware of the potential for depreciation recapture if the aircraft is sold or the taxpayer does not meet usage requirements in any year. Depreciation recapture can result in significant tax liabilities, as the recaptured amount up to the previously claimed depreciation is taxed as ordinary income.
Impact of Leasing and Ownership Structures
Leasing the aircraft or using it differently than how our Ownership and Operating Structure diagram depicts can affect depreciation eligibility. For example, leases to related parties or compensatory flights to 5% owners which were unplanned can disqualify the aircraft from meeting the 25% Qualified Business Use test, impacting the ability to satisfy bonus depreciation eligibility requirements.
IRS Audit Preparedness
Be prepared for potential IRS audits, especially with the increased focus on aircraft usage. The IRS is stepping up audits of large corporate aircraft owners and high-net-worth-individuals to ensure proper allocation between business and personal use. Proper documentation and adherence to tax rules are critical to defending the taxpayer’s tax positions.
Consultation with Tax Professionals
Encourage communication when appropriate between the taxpayer’s accountant and our aviation tax attorneys to ensure the tax preparer fully understands the aviation tax strategy. Harmonized advice can help navigate the intricate requirements and ensure compliance with both IRS and FAA regulations, optimizing tax benefits and avoiding pitfalls.
Memorialize Tax Strategy
Consult with the taxpayer’s accountant to evaluate whether a detailed tax memo analyzing eligibility for bonus depreciation under the specific operational facts and circumstances would be advantageous to memorialize the intricacies of the elected aircraft tax strategy.
Why Early Planning is Crucial
While bonus depreciation can benefit business owners greatly, careful planning and consideration of tax rules is needed early. There are often small planning decisions that can lead to significant tax savings and help preserve eligibility for bonus depreciation (and character of bonus depreciation and other deductions). In some cases, the right move may be as simple as adjusting the ownership structure of an entity, opting to use third-party charter rather than your own aircraft for personal travel, or deferring charter activity for a few months. But these strategies must be addressed at the onset to avoid costly mistakes. Once an aircraft is placed in service, it’s often too late to correct oversights. Overlooking these details can trigger cascading consequences, including state and local tax exposure, FAA compliance risks, and SEC fringe benefit reporting obligations for public companies. Early planning is essential to avoid costly missteps.
Please note, this blog post serves as an introductory summary and is not exhaustive. We, at Bizjet Law, are available to provide you with a tax memo analyzing the bonus depreciation eligibility of your particular aircraft, and can also provide ongoing periodic consultation, practical guidance, and training recommendations and tools, to help avoid limitations to bonus depreciation. Our team is here to support you through these intricate requirements. Should you have any questions or need further assistance, please do not hesitate to contact me.
Consulting with a tax lawyer that also specializes in aviation regulations is advisable to navigate these complex mechanisms. If you or your company have any questions regarding how restoration of 100% bonus depreciation may impact your business or aviation transaction, we encourage you to reach out to Emanuel Anton at (720) 807-1607 or emanuel@bizjetlaw.com.