Are commercial aircraft engines leased to airlines eligible for bonus depreciation under Section 168(k) if acquired in 2025?
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To determine whether commercial aircraft engines leased to airlines and acquired in 2025 are eligible for bonus depreciation under Section 168(k), we must analyze several key requirements and exceptions under the Internal Revenue Code, Treasury Regulations, and recent legislative changes.
1. General Eligibility for Bonus Depreciation (§168(k))
Qualified property for bonus depreciation must:- Be MACRS property with a recovery period of 20 years or less,- Be acquired by purchase (not from a related party or by gift/inheritance),- Be placed in service after the relevant effective date,- Not be required to use the Alternative Depreciation System (ADS) under §168(g) (unless only for certain purposes, see below),- Not be excepted property (e.g., used predominantly outside the U.S., tax-exempt use, etc.).
Commercial aircraft engines are tangible personal property, generally depreciated over 5 or 7 years under MACRS, and thus have a recovery period of 20 years or less.
2. Leased Property and the "Original Use" Requirement
For property acquired after September 27, 2017, and placed in service after that date, bonus depreciation is available for both new and used property, provided the taxpayer did not previously have a depreciable interest in the property and the acquisition is not from a related party.
Leased property: If the lessor (the owner of the engine) acquires the engine and leases it to an airline, the lessor is considered to have placed the property in service (as the property is used in the lessor’s trade or business of leasing). The lessee’s use does not disqualify the property, provided the lessor meets the other requirements.
3. Special Rules for Commercial Aircraft and Aircraft Engines
Section 168(k) and the regulations provide special rules for certain aircraft and property with long production periods, but these are generally to allow longer placed-in-service windows, not to exclude aircraft or engines from bonus depreciation.
4. Exceptions: Property Required to Use ADS
Bonus depreciation is not available for property required to be depreciated under the Alternative Depreciation System (ADS) under §168(g)(1)(A)-(D), which includes:- Property used predominantly outside the United States,- Tax-exempt use property,- Tax-exempt bond-financed property,- Imported property covered by an Executive Order.
However, property leased to airlines for use in commercial passenger or freight service is not, by itself, required to use ADS. ADS would only be required if the property is used predominantly outside the U.S., is tax-exempt use property, or is tax-exempt bond-financed property.
- If the aircraft engine is used predominantly in the U.S. and is not tax-exempt use property or tax-exempt bond-financed property, it is not required to use ADS and remains eligible for bonus depreciation.
- If the engine is used predominantly outside the U.S., or is tax-exempt use property, it would be required to use ADS and would not be eligible for bonus depreciation.
5. Recent Legislative Changes (2025 and After)
The One Big Beautiful Bill Act (OBBBA) made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025. For property acquired before January 20, 2025, the phase-down schedule applies (40% in 2025, 20% in 2026, 0% in 2027). For property acquired after January 19, 2025, the 100% rate applies regardless of placed-in-service date.
6. Summary Table of Requirements for 2025
7. Conclusion
Commercial aircraft engines acquired by a lessor in 2025 and leased to airlines are eligible for 100% bonus depreciation under Section 168(k) if:- The engines are acquired after January 19, 2025,- The engines are used predominantly in the United States,- The engines are not tax-exempt use property or tax-exempt bond-financed property,- The lessor does not elect out of bonus depreciation.
If these conditions are met, the lessor may claim 100% bonus depreciation in the year the engine is placed in service (i.e., leased to the airline).
Caveat: If the engine is used predominantly outside the U.S., is tax-exempt use property, or is tax-exempt bond-financed property, it would be required to use ADS and would not be eligible for bonus depreciation.
If you have a specific fact pattern (e.g., the engine is used in international operations, or is financed with tax-exempt bonds), further analysis may be required.
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