Angel Houck

The Presidential election results are in. Now we can predict how a second Trump term will impact aircraft taxes.

Looking back at 2024, the general environment has been anti-aircraft owner. For example, earlier this year, the President released a statement to “crack down” on corporate jet loopholes and eliminate tax breaks for corporate jet users. This followed the IRS announcement of their plan to conduct focused audits on business aircraft use. A group of senators (all still in office) also wrote a letter pressuring the Treasury to reevaluate the Standard Industry Fare Level (SIFL) rates, calling them “outlandish.” Biden and Harris’s tax plans included a provision to extend the depreciable life of aircraft to 7 and 12 years.

Since February, the IRS has increased its level of audits on aircraft taxes. The SIFL issue is still out there, but the argument that the lower rate provides tax loopholes is misunderstood.  It remains to be seen whether this matter will gain any traction.

In the near term, the key question people are eagerly awaiting is whether 100% bonus depreciation will return. Trump has presented several tax policy ideas. Yet there are a few things consistent across the board with 100% bonus depreciation being one of them. There’s also talk that the change may even be made retroactively, meaning 2024 purchases would qualify.

If I had to use my crystal ball, I think it’s likely that 100% bonus depreciation will return in the near future. As for other changes to aircraft taxes, I expect we’ll see a major tax package come through in 2025, but the contents are yet unknown. 

My wish list this Christmas? Allowing the excess business loss limitations to expire and bringing back like-kind exchanges. Both are unlikely, but a girl can dream.

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As we approach the end of the year, we continue to receive a lot of questions on aircraft bonus depreciation. With the current law, many aircraft will qualify for up to 60% bonus depreciation in 2023, and some will even qualify for 80%. As with most tax law, there are conditions that must be met, and the intricacies cannot be overlooked. To avoid unexpected surprises at tax time, it is important to address the rules before you close.

To qualify for bonus depreciation, the aircraft must be predominantly used in Qualified Business Use (“QBU”). Aircraft that will be predominantly for personal use often will not qualify. QBU has a stricter definition than business use. It has special carve-outs for related party leases and use by “greater than five percent” owners. The ownership and operating structure must be carefully analyzed to determine if the requirements can be met.

The usage of the aircraft is the primary driver for eligibility, and is based on your tax year. Each year, the aircraft usage must be carefully monitored and analyzed to ensure that the QBU requirements are met. If the QBU requirements are not met in a later year, you may have to “give back” the bonus depreciation. That means taking a lesser depreciation deduction, referred to as recapture.

Keep in mind that any deductions, including depreciation, will be limited by personal use of the aircraft. This includes not only personal flights, but also personal guests onboard business flights. We recommend careful planning of your flight itineraries through year end to ensure that the deduction is maximized, especially in the year of purchase.

Bonus depreciation is scheduled to reduce by 20% each year, so 40% in 2025, 20% in 2026, and down to 0% in 2027. However, with the election coming up, and a long-time pending bill to bring back 100% bonus sitting with the senate, the rules could change in the future. If you are looking to purchase an aircraft and bonus depreciation is an incentive, be sure to address the requirements prior to purchase to make sure your tax planning goals are met.

About the Author

Angel Houck is a CPA and the co-founder of Houck & Christensen CPAs, LLC, a firm that focuses exclusively on business aviation. Angel advises many tax matters that impact aircraft owners and operators, including federal income tax, state and local taxes, federal excise tax, US source income, and audit support. Angel is on the NBAA Tax Committee, Treasurer of the Central Florida Business Aviation Association and a member of IADA.