Aircraft Tax Deduction: How Section 168 Bonus Depreciation Works

What is the aircraft tax deduction under §168(k)?

Section 168(k) bonus depreciation lets a taxpayer expense a statutory percentage of an aircraft's depreciable basis in the year the aircraft is placed in service, provided qualified business use exceeds 50%. For property placed in service in 2024 the rate is 60%; in 2025 it drops to 40%; in 2026 it falls to 20%; and absent congressional action it reaches 0% in 2027. The remaining basis depreciates under MACRS — five years for Part 91 business aircraft, seven years for Part 135 commercial-use aircraft — on a 200% declining balance method.

The deduction applies to both new and pre-owned aircraft, a change preserved by the 2017 Tax Cuts and Jobs Act. A 2018 Gulfstream G550 acquired in 2024 for $22 million by an operating business with 80% qualified business use generates a roughly $10.56 million year-one bonus deduction (22M × 80% × 60%), with the remaining basis carrying into the MACRS schedule.

What counts as qualified business use?

Qualified business use means flights flown in the active conduct of the taxpayer's trade or business, and the threshold is 50% measured on flight hours, not passenger seat-miles. The 50% test under §280F is unforgiving: drop below it in any year during the recovery period and you face recapture of prior bonus and accelerated depreciation, reverting the schedule to straight-line over six years (ADS).

Personal flights by 5% owners and related parties do not count toward qualified business use even if the company charges for them under §1.61-21 SIFL rules. Charter of the aircraft to unrelated third parties counts. Commuting between residence and principal place of business does not. Entertainment flights — defined broadly post-2017 — are disallowed under §274(a) for the company taking the deduction, and the IRS expects an allocation method (occupied seat-hours or flight-by-flight) to back out the disallowed portion.

How does the bonus depreciation phaseout actually work?

The phaseout is mechanical and tied to the placed-in-service date, not the contract date. An aircraft contracted in December 2024 but not delivered, accepted, and placed in service until February 2025 takes 40%, not 60%. The narrow exception is the §168(k)(2)(B) longer-production-period rule for certain transportation property with a production period exceeding one year and a cost above $1 million, which can preserve the prior year's higher rate — relevant for new-build large-cabin jets ordered well in advance.

The phaseout schedule: 60% for property placed in service during calendar 2024, 40% during 2025, 20% during 2026, and 0% starting 2027. Pending legislation has periodically proposed restoring 100% bonus retroactively; as of this writing none has been enacted into law, and planning should rely on the statutory schedule.

What if bonus depreciation doesn't cover the full purchase?

Section 179 expensing and standard MACRS pick up the rest. §179 allows immediate expensing up to roughly $1.22 million for tax year 2024, phasing out dollar-for-dollar once total qualifying property placed in service exceeds approximately $3.05 million — which most business aircraft purchases blow through, eliminating §179 as a meaningful lever for jets. It remains useful for avionics upgrades, hangar equipment, and ground support assets.

The MACRS schedule for a Part 91 aircraft used in a trade or business is five-year property under Asset Class 00.21, depreciated on a 200% declining balance with a half-year (or mid-quarter) convention. Year-one MACRS without bonus is 20%; with the 60% bonus applied first, the residual 40% of basis is depreciated against that schedule. Part 135 commercial aircraft fall under Asset Class 45.0 as seven-year property.

What are the §280F luxury limits and listed property rules?

Aircraft are explicitly excluded from the §280F(d)(5) "luxury auto" dollar caps, but they remain listed property under §280F(d)(4), which triggers the heightened substantiation requirements of §274(d). That means contemporaneous flight logs documenting date, destination, passengers, business purpose, and flight hours for every leg. The IRS Large Business & International division has trained examiners on aircraft cases; a missing passenger manifest or a vague "business meeting" entry is the kind of finding that unwinds a multimillion-dollar deduction.

The 50% qualified business use test is also a listed-property test. Fail it and §280F(b)(1) forces you onto the alternative depreciation system retroactively, with prior excess depreciation recaptured as ordinary income in the year of the failure.

How do §274 entertainment disallowance and §469 passive activity affect the deduction?

§274(a)(1) disallows any deduction for entertainment flights, and the 2017 TCJA eliminated the prior 50% entertainment deduction entirely. The regulations under §1.274-10 require taxpayers to allocate expenses — including depreciation — between business, non-entertainment personal, and entertainment use. The disallowed portion of depreciation is permanently lost, not deferred.

Section 469 passive activity rules can trap the deduction at the individual level. An owner who places an aircraft in an LLC that leases dry to an operating company faces a presumption of passive treatment unless the owner materially participates in the leasing activity, which is difficult to establish for a single-aircraft lessor. The result: a large paper loss that cannot offset wages or portfolio income, only future passive income. Practitioners structure around this with the §469(c)(7) self-rental rules, grouping elections under Reg. §1.469-4, or by housing the aircraft directly in the operating business rather than a separate leasing entity.

What documentation does the IRS expect on audit?

The IRS expects contemporaneous records, not reconstructed spreadsheets. That means a flight log for every leg with date, route, block time, passengers by name, and a stated business purpose; board minutes or written policies authorizing executive use; an SIFL calculation for any personal flights imputed as compensation; a §274 allocation worksheet identifying entertainment legs; and a clear chain of title and operating agreements if the aircraft sits in a separate LLC.

Aircraft are a recurring IRS focus, and the agency has signaled expanded enforcement on corporate jet personal use following 2024 IRS announcements. A deduction that survives audit is built before the aircraft is delivered, not after the notice arrives.