Question: How long will bonus depreciation last?
Internal Revenue Service’s Circular 230 Disclaimer:
This information is intended to be preliminary, for discussion purposes only, and not final. This advice is not intended or written to be used, and it cannot be used, by any person for the purpose of avoiding tax penalties that may be imposed on such person.
Answer: 100% bonus depreciation applies to new and used aircraft placed in service after September 27, 2017, and before January 1, 2023. The purchase of most, but not all, new aircraft will still qualify if placed in service prior to January 1, 2024, and not primarily used by an air carrier or other commercial service. For new aircraft not used primarily in commercial service to qualify for the one-year delay (i.e. a business use aircraft not chartered), a 10% non-refundable deposit (or $100,000, if less) is required at the time of contract signing, with an estimated production period exceeding four months and a cost exceeding $200,000. A new aircraft used primarily in commercial service will only qualify for 100% bonus depreciation in 2023 if the aircraft has an estimated production period exceeding one year and costs more than a million dollars.
Question: Is there still bonus depreciation after December 31, 2022?
Answer: Beginning in 2023, bonus depreciation will phase down by 20 percent per year. An aircraft placed in service in 2023 will be eligible for 80 percent bonus depreciation, in 2024 it will be eligible for 60 percent bonus depreciation, and so on.
NOTE: The purchase of new aircraft that meet the requirements for bonus depreciation during 2023 will be phased down by 20 percent per year as well, but on a one-year delay. So, if such an aircraft is placed in service in 2024, the purchase will be eligible for 80 percent bonus depreciation, 60 percent in 2025, and so on.
Question: Will Congress extend bonus depreciation?
Answer: There are numerous political pundits struggling to provide predictions, and their answers sound like the Magic 8-Ball: “My sources say no.” “Ask again later.”
Question: Can I still do a like-kind exchange?
Answer: For years, aircraft owners were allowed to take advantage of the “like-kind exchange” rules of IRC § 1031, but the 2017 Tax Cuts and Jobs Act excluded aircraft from IRC § 1031. Typically, the IRS looks on any sale or “exchange” of goods as a taxable event. Without the like-kind exchange rules, if you have owned an aircraft for seven years, taken your depreciation deductions until the tax value reached $0, then sell it for a million dollars, you will owe tax on a million dollars’ worth of gain (profit).
Please note that buying an aircraft before the end of 2022 is not enough to take bonus depreciation. The aircraft must be “placed in service” this year. The IRS has often battled with taxpayers over the details of whether an aircraft was properly placed in service before year-end.
