Why Bonus Depreciation Matters for Private Aircraft Owners

The clock is ticking for those potential buyers considering the acquisition of a new jet to take advantage of 100% bonus depreciation. With the Tax Cuts & Jobs Act (TCJA) set to expire in 2023, the opportunity to maximize the different types of tax exemption is rapidly closing. So, what exactly does bonus depreciation mean for potential aircraft owners, and why does it matter?

In the world of private aviation, bonus depreciation allows for a large percentage (up to 100%) of an asset to be written off within the year of the aircraft acquisition. This means that instead of considerable time spent on gradually depreciating the cost of your private aircraft over its useful lifetime, aircraft owners can deduct a significant portion of the cost upfront, reducing their taxable income.

Before the TCJA, only brand-new private planes qualified for bonus depreciation, but now a preowned jet can enjoy the same benefit. This change opened up a world of opportunity for business aviation users of all sizes. Deducting a substantial amount in a single year can significantly reduce the highest marginal tax rate of aircraft owners.

However, the window for 100% bonus depreciation is closing. Starting in 2024, the percentage will be phased down by 20 percentage points each year until it reaches 0% in 2027. This means that if you’re considering the potential acquisition of  a private aircraft and want to take advantage of bonus depreciation, now is the time to act.

To qualify for 100% bonus depreciation, private jets must be purchased and placed in service for an active business in the tax year in question. It must also be used at least 25% of the time for “qualified business use” and at least 51% of the time for total business use. Additionally, the qualified property must be placed into service before the 2023 deadline.

It’s important to note that complex IRS regulations may impact eligibility for bonus depreciation. Enlisting the help of qualified private aviation consultants who specialize in tax exemption as well as a team for aircraft sales and acquisition services is essential to ensure that you structure the ownership in a way that optimizes your tax benefits.

The benefits of bonus depreciation for private aircraft owners are significant. For example, a new jet purchased for $15 million and placed in service this year provides a tax exemption of up to $15 million in income. With a 37% tax rate, that’s $5.5 million in taxes saved.

Another advantage of bonus depreciation is that high-net-worth individuals can write off more than they usually would, resulting in a reduced tax rate regardless of the usage of private planes. Even if the private aircraft is used for travel needs outside of your business purpose, the initial 100% deduction can still be claimed. In subsequent years, qualified business use must exceed 50% of the usage, but the asset can be used more freely for your travel needs and unique requirements.

To take advantage of bonus depreciation, it is crucial to work with qualified tax aviation professionals as well as a team that offers aircraft brokerage services. These qualified private aviation consultants will be able to do the hard work of navigating the complexities of the tax regulations for you and ensure that you are maximizing your tax exemption.

In conclusion, time is running out for 100% bonus depreciation on private jets. With the TCJA set to expire in 2023, now is the time to act if you want to take advantage of this significant tax exemption. The good news is that by working with qualified aviation professionals and structuring your ownership appropriately, you can optimize your tax advantages and make the most of this limited opportunity for your own use. 

Contact Freestream today for expert guidance and exceptional service in order to reap the full benefits of 100% bonus depreciation.