Does aircraft bonus depreciation impact alternative minimum tax (AMT) calculations?
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Summary:
Aircraft bonus depreciation generally does **not** create an adjustment for alternative minimum tax (AMT) purposes. The rules for bonus depreciation under IRC §168(k) allow the same deduction for both regular tax and AMT, so there is no AMT adjustment for the bonus depreciation portion. However, for the remaining depreciable basis (after bonus depreciation), the method used for regular tax may differ from the method required for AMT, potentially resulting in an AMT adjustment for that portion. Below is a detailed explanation with references to the relevant Code sections, regulations, and authoritative guidance.
1. Bonus Depreciation and AMT: No Adjustment Required
a. Statutory Rule:- For property placed in service after 1998, the bonus depreciation deduction under IRC §168(k) is allowed for both regular tax and AMT purposes. This is explicitly stated in IRC §168(k)(2)(G), which provides that the deduction for qualified property is determined without regard to any adjustment under section 56 (the AMT adjustment section) for both regular tax and AMT purposes.
b. Regulatory Confirmation:- Treasury Regulation §1.168(k)-1(d)(1)(iii) confirms that the additional first-year depreciation deduction (bonus depreciation) is allowed for AMT purposes in the year the property is placed in service, and is based on the unadjusted depreciable basis for AMT purposes.
c. Practical Effect:- This means that the amount of bonus depreciation claimed for regular tax is also allowed for AMT, so there is no AMT adjustment for the bonus depreciation portion of the deduction.
2. Depreciation of Remaining Basis: Potential for AMT Adjustment
a. After Bonus Depreciation:- After claiming bonus depreciation, the remaining basis of the aircraft is depreciated under MACRS for regular tax purposes (typically using the 200% declining balance method for 5- or 7-year property, or 150% for 15- or 20-year property).
b. AMT Depreciation Method:- For AMT, the depreciation method for most tangible personal property (including aircraft) is the 150% declining balance method, switching to straight line when it yields a greater deduction, over the same recovery period as regular tax (see IRC §56(a)(1)(A)(ii)).- For real property (e.g., nonresidential real property, residential rental property), both regular tax and AMT use the straight-line method, so there is no AMT adjustment.
c. When an Adjustment Arises:- If the taxpayer uses a more accelerated method (e.g., 200% declining balance) for regular tax on the remaining basis, but AMT requires 150% declining balance, an AMT adjustment is required for the difference in depreciation on the remaining basis (not the bonus portion).
d. How to Avoid an Adjustment:- If the taxpayer elects to use the 150% declining balance method for both regular tax and AMT, no AMT adjustment is required for the remaining basis.
3. Section 179 Expensing and AMT
- Section 179 expensing is also allowed for both regular tax and AMT purposes, so no AMT adjustment is required for the Section 179 deduction.
4. Summary Table
6. Conclusion
Aircraft bonus depreciation does not create an AMT adjustment. The deduction is allowed for both regular tax and AMT purposes. However, for the remaining depreciable basis, if a more accelerated method is used for regular tax than is allowed for AMT, an adjustment is required for the difference. Taxpayers can avoid this adjustment by electing the 150% declining balance method for both regular tax and AMT on the remaining basis. Section 179 expensing also does not require an AMT adjustment.
If you need further details on a specific type of aircraft, property classification, or a particular tax year, please provide more information.
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