What are the IRS bonus depreciation guidelines for aircraft?
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The IRS bonus depreciation guidelines for aircraft are governed by a combination of Internal Revenue Code (IRC) provisions, Treasury Regulations, and recent legislative changes. Below is a comprehensive explanation of the key rules, requirements, and limitations for claiming bonus depreciation on aircraft as of 2025, including the impact of the One Big Beautiful Bill Act (OBBBA) and relevant IRS guidance.
1. Eligibility for Bonus Depreciation: General Requirements
Qualified Property
To qualify for bonus depreciation under IRC §168(k), an aircraft must meet the definition of "qualified property." This generally includes:- Property with a recovery period of 20 years or less under MACRS (Modified Accelerated Cost Recovery System).- The original use of the property must begin with the taxpayer, or, for used property, it must be acquired in a manner that meets the requirements of §168(k).- The property must be acquired and placed in service within the timeframes specified by law.
Acquisition and Placed-in-Service Dates
- For property acquired and placed in service after January 19, 2025, the OBBBA restores 100% bonus depreciation for qualified property, including aircraft.
- For property acquired under a binding contract before January 20, 2025, the phase-down rates apply (e.g., 40% in 2025, 20% in 2026, 0% in 2027).
Self-Constructed Aircraft
- For self-constructed property, the acquisition date is determined by when physical work of a significant nature begins, or when more than 10% of the total cost is incurred (excluding land and preliminary activities), as per the safe harbor in Treas. Reg. §1.168(k)-1(b)(4)(iii)(B)(2).
2. Special Rules for Aircraft
Definition of Aircraft
- Aircraft are considered "transportation property" under §168(k)(2)(B), which includes tangible personal property used in the trade or business of transporting persons or property.
Special Acquisition Rules for Aircraft
- For bonus depreciation, the aircraft must be purchased (not leased) and, at the time of contract, the purchaser must make a nonrefundable deposit of the lesser of 10% of the cost or $100,000.
- The aircraft must have an estimated production period exceeding 4 months and a cost exceeding $200,000.
Business Use Requirement
- To qualify for bonus depreciation, the aircraft must be used at least 50% for qualified business use in the year it is placed in service (the "50% test" under §280F(b)(1)).
- Additionally, at least 25% of the business use must not be attributable to leasing the plane to oneself or a related party.
Listed Property Rules
- Aircraft are "listed property" under §280F, which means strict substantiation and recordkeeping requirements apply. Taxpayers must maintain detailed contemporaneous records of each flight, including the date, purpose, passengers, origin, destination, and allocation between business and personal use.
3. Depreciation Methods and Recovery Periods
- Aircraft (other than those used in commercial or contract carrying of passengers or freight) generally have a 5-year MACRS recovery period under the General Depreciation System (GDS).
- The 200% declining balance method is typically used, switching to straight line when it yields a greater deduction.
4. Limitations and Disallowances
Alternative Depreciation System (ADS)
- If the aircraft is not used predominantly for qualified business use, or is used outside the U.S., or is tax-exempt use property, it must be depreciated under ADS (straight line, longer recovery period), and is not eligible for bonus depreciation.
Section 280F Limitations
- If the aircraft fails the 50% business use test in any year, all prior accelerated depreciation (including bonus) must be recaptured as ordinary income, and future depreciation must be computed under ADS.
Hobby Loss and Passive Activity Rules
- If the aircraft is not used in a bona fide trade or business (e.g., is used primarily for personal enjoyment or is leased to oneself), deductions may be disallowed under §183 (hobby loss) or limited under passive activity rules.
5. Recordkeeping and Substantiation
- Taxpayers must keep detailed, contemporaneous records for each flight, including:
- Date, aircraft used, passengers, purpose (business, personal, entertainment, commuting), origin, destination, flight hours, and expenses.
- For business flights, the log must specify the business purpose for each passenger and include supporting documentation (e.g., calendars, timesheets).
- For mixed-use flights, the log must substantiate the allocation between business and personal use.
6. Recapture and Disposition
- If the aircraft is sold or its use changes (e.g., business use drops below 50%), any gain up to the amount of prior depreciation (including bonus) is recaptured as ordinary income under §1245.
7. Recent Legislative Changes (OBBBA, 2025)
- The OBBBA (P.L. 119-21) made 100% bonus depreciation permanent for qualified property, including aircraft, acquired after January 19, 2025.
- For property acquired under a binding contract before January 20, 2025, the phase-down rates (40% in 2025, 20% in 2026, 0% in 2027) still apply.
8. Audit Risk and IRS Enforcement
- The IRS has launched a business aircraft audit campaign, focusing on:
- Proper substantiation of business vs. personal use.
- Correct application of bonus depreciation and recapture rules.
- Disallowance of deductions for entertainment use and hobby loss activities.
- Compliance with excise tax rules for air transportation.
9. Summary Table: Key Bonus Depreciation Rules for Aircraft (2025)
10. Conclusion
To claim bonus depreciation for an aircraft, the taxpayer must ensure the aircraft is "qualified property," is acquired and placed in service within the required timeframes, and is used predominantly for qualified business purposes. The taxpayer must maintain detailed records to substantiate business use, comply with listed property rules, and be prepared for potential IRS scrutiny. If the aircraft fails the business use test or is disposed of, recapture of prior depreciation may be required. The OBBBA has restored 100% bonus depreciation for aircraft acquired after January 19, 2025, but phase-down rules still apply to earlier acquisitions.
If you have a specific scenario (e.g., commercial vs. noncommercial use, acquisition date, or business use percentage), please provide more details for a tailored analysis.
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