On July 4, 2025, the One Big Beautiful Bill Act (the “BBB”) was signed into law by President Trump. Under the BBB, the tax law now provides for a return to 100 percent bonus depreciation, allowing taxpayers an immediate deduction of the cost of aircraft acquired and placed in service after January 19, 2025. The BBB authorizes 100 percent bonus depreciation for both new and pre-owned aircraft, so long as it is the taxpayer’s first use of the aircraft.
As revised by the BBB, an aircraft is eligible for 100 percent bonus depreciation if it meets certain requirements, including the following:
- The taxpayer is the original owner of the aircraft, or if pre-owned, the aircraft was not used by the taxpayer at any time prior to its acquisition by the taxpayer;
- The aircraft is placed in service by the taxpayer after January 19, 2025. Note that “placed in service” is not necessarily the same date as when the aircraft is purchased or delivered.
- The aircraft is predominantly used in the United States.
- The aircraft is used predominantly for a “qualified business use” (“QBU”). Certain aircraft ownership structures such as related party leasing or personal use of the aircraft may limit or curtail applicable QBU.
Entertainment Use of the Aircraft Results in a Partial Disallowance of Bonus Depreciation
While it is easy to assume that a taxpayer will be able to deduct the entire purchase price of the aircraft, any entertainment use, whether business or personal, will result in a partial loss of bonus depreciation. Travel for personal vacations, attending a ballgame, golf, or hunting event, or other entertainment activities in the year may result in a portion of the bonus depreciation being disallowed. To qualify for 100% bonus depreciation in the first year, only use the aircraft for bona fide business trips.
Less than 50% QBU after Year 1 Triggers Expensive Depreciation Recapture
If the aircraft is not used at least 50% of the time in a “qualified business use for the next six years of ownership and use (for Part 91 operations), then a taxpayer must recapture (i.e. include in income) any excess depreciation in the year that the aircraft fails to meet the 50% QBU test. See the example on the following page. This may result in a large income recognition event, and the remaining basis in the aircraft will be depreciated over a straight-line period (6 years for aircraft used in Part 91 operations).
Speak with a Qualified Aviation Tax Attorney
Buying the aircraft and placing it in service is only the first step in qualifying for bonus depreciation. How you structure the ownership, use the aircraft, and keep records helps protect and preserve your bonus depreciation in future years. Contact Matt Mentzer, tax attorney and CPA, to learn more. Email by clicking here or calling 202-499-3834.
Tax Impact of Aircraft Not Meeting 50% Qualified Business Use in Future Years
Assume a business purchases a new Embraer Praetor for $25,000,000 in August of 2025. The business places the aircraft into service on October 1, 2025, and uses the aircraft 100% in a qualified business use with no entertainment usage. The business elects 100% bonus depreciation for the aircraft for the 2025 tax period, which results in a $25,000,000 deduction.
In 2026 (year 2), the business leases the aircraft to the owner of the business for her personal use. At the end of the year, the business only used the aircraft 50 hours in its business, and the owner used the aircraft 200 hours for her personal use. This results in QBU being less than 50%. What are the tax implications to the business?
1. Depreciation Recapture and Recognition of Income. The business must recognize income equal to the amount of bonus depreciation in excess of the amount that would have been deducted under straight-line depreciation from the year the aircraft would have been placed into service. How do we calculate that amount? We use table A-12 from IRS Publication 946, which provides as follows:
| Year | Depreciation Percentage | Qualified Business Use | Straight Line Depreciation |
|---|---|---|---|
| 2025 | 2.08% | 100% | $520,000.00 |
| 2026 | 16.67% | 20% | $833,500.00 |
| 2027 | 16.67% | 100% | $3,941,871.55 |
| 2028 | 16.67% | 100% | $3,941,871.55 |
| 2029 | 16.66% | 100% | $3,939,506.90 |
| 2030 | 16.67% | 100% | $3,941,871.55 |
| 2031 | 14.58% | 100% | $3,447,659.70 |
At the end of 2026, the taxpayer was only entitled to take $1,353,500 ($520,000 + $833,500) of depreciation under the straight-line method. This results in excess depreciation of $23,646,500, which must be recaptured. This amount ($23,646,500) must be recognized as income in 2026.
2. Straight Line Depreciation Going Forward. Once the business fails the 50% QBU test, it must use straight line depreciation for the remaining life of the aircraft (see schedule above). The taxpayer cannot not “cure” the deficient QBU in future years.