Depreciation

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Aircraft that are owned and operated by businesses are often depreciable for income tax purposes under the Modified Accelerated Cost Recovery System (MACRS). Under MACRS, taxpayers are allowed to accelerate the depreciation of assets by taking a greater percentage of the deductions during the first few years of the applicable recovery period. In certain cases, aircraft may not qualify under the MACRS system and must be depreciated under the less favorable Alternative Depreciation System (ADS).

Under ADS, depreciation is based on a straight-line method meaning that equal deductions are taken during each year of the applicable recovery period. In most cases, recovery periods under ADS are longer than recovery periods available under MACRS.

There a variety of factors that taxpayers must consider in determining if an aircraft may be depreciated, and if so, the correct depreciation method and recovery period that should be utilized. For example, aircraft used in commercial service (i.e. Part 135) are normally depreciated under MACRS over a seven year recovery period or under ADS using a twelve year recovery period.

Aircraft used for qualified business purposes, such as Part 91 business use flights, are generally depreciated under MACRS over a period of five years or by using ADS with a six year recovery period. There are certain uses of the aircraft, such as non-business flights, that may have an impact on the allowable depreciation deduction available in a given year. With this in mind, operators are encouraged to review the resources on this page and work with qualified aviation tax and legal counsel to determine the best approach for depreciating business aircraft.

Depreciation News

NBAA Submits Comments on IRS Deduction and Capitalization Regulations
April 23, 2012
Recently, the IRS published temporary regulations that provide guidance on the application of sections 162(a) and 263(a) of the Internal Revenue Code to amounts paid to acquire, produce, or improve tangible property, including business aircraft and their components. Among other things, these temporary regulations provided certain bright-line tests (for example, a de minimis rule for certain acquisitions) as well as guidance regarding the accounting for, and dispositions of, property subject to Internal Revenue Code section 168. The temporary regulations became effective on January 1, 2012. NBAA submitted technical comments last week, addressing tax treatment of inspection and maintenance programs, aircraft repairs and overhauls, the routine maintenance safe harbor, deductions on previously owned aircraft, and restorations. Review NBAA's Comments (100 KB, PDF).
NBAA to Meet With Treasury Department on Depreciation Concern
December 5, 2011
Representatives from NBAA's Tax Committee will meet with the U.S. Department of Treasury this week to discuss concerns about a trap for aircraft owners created by IRS guidance. IRS interprets a provision in Section 280F in a manner that could cause legitimate business flights to be treated as personal flights for purposes of determining whether the aircraft is eligible to be depreciated under the Modified Accelerated Cost Recovery System (MACRS) when the aircraft is leased to a 5-percent-or-more owner or related party. Common business aircraft ownership and leasing structures are subject to this interpretation. Learn more about this tax issue.

Bonus Depreciation

Bonus Depreciation has been extended for 2011 and may allow aircraft owners to realize the depreciation benefits of an eligible asset more quickly. Lean More.

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