Aircraft Tax Deductions: Complete Guide to Depreciation and Business Use

Understanding aircraft tax deductions provides significant savings for business owners using airplanes for business purposes. This guide covers Section 179, bonus depreciation, business use requirements, and strategic airplane tax planning.

Section 179 Depreciation

What is Section 179?

• Allows immediate deduction of aircraft cost in year of purchase
• 2025 limit: $1,220,000 deduction (indexed annually)
• Phase-out begins at $3,050,000 total equipment purchases
• Applies to new and used aircraft
• Must be used for business more than 50%

Requirements for Section 179:

• Aircraft must be purchased and placed in service same tax year
• Business use exceeds 50% of total flight time
• Cannot create net operating loss
• Limited to business taxable income
• Depreciation recapture applies if sold within 5 years

Bonus Depreciation

Current Bonus Depreciation Rates:

• 2024: 60% first-year bonus depreciation
• 2025: 40% first-year bonus depreciation
• 2026: 20% first-year bonus depreciation
• 2027 and beyond: 0% (expires unless extended)

Bonus Depreciation Advantages:

• No dollar limit (unlike Section 179)
• Can create net operating loss
• Stacks with Section 179 deduction
• Applies to new aircraft only (purchased new, not used)

Combining Section 179 and Bonus Depreciation

Example: $500,000 Aircraft Purchase (2025)

• Section 179 deduction: $500,000 (full aircraft cost)
• Result: $500,000 first-year deduction
• Tax savings at 37% bracket: $185,000

Alternative Strategy:

• Bonus depreciation (40%): $200,000
• Remaining basis: $300,000
• Section 179 on remainder: $300,000
• Total first-year deduction: $500,000

Business Use Requirements

Qualifying Business Use:

• Travel to business meetings and site visits
• Client entertainment and relationship building
• Transporting employees to work locations
• Property inspection and management flights
• Business development and networking trips

Non-Qualifying Personal Use:

• Personal vacations and leisure travel
• Commuting to regular workplace
• Family trips without business purpose
• Entertainment flights without business connection

Documentation Requirements:

• Detailed flight log with business purpose
• Trip dates, destinations, passengers
• Business purpose narrative for each flight
• Meeting notes or evidence of business activity
• Contemporaneous records (not retroactive)

Operating Expense Deductions

Fully Deductible Business Expenses:

• Fuel costs (business flights only)
• Hangar rent or tie-down fees
• Insurance premiums (business portion)
• Maintenance and repairs
• Annual inspections
• Database subscriptions (ForeFlight, Jeppesen)
• Pilot training and recurrent training
• Landing fees and parking

Allocation for Mixed-Use:

• Calculate business use percentage
• Apply percentage to all variable costs
• Example: 60% business use = deduct 60% of fuel, maintenance
• Fixed costs (insurance, hangar) prorated similarly

Entity Structure Considerations

LLC or S-Corporation Ownership:

• Aircraft owned by business entity
• All expenses run through business
• Clearer separation of business/personal
• Easier depreciation and deduction tracking
• May complicate personal use reimbursement

Personal Ownership with Business Use:

• Individual owns aircraft personally
• Deduct business use percentage
• More complex recordkeeping
• Requires detailed allocation

Tax Planning Strategies

Maximizing First-Year Deductions:

• Purchase and place in service by December 31
• Use Section 179 for immediate deduction
• Ensure business use exceeds 50% threshold
• Coordinate with other equipment purchases

Multi-Year Planning:

• Consider timing of purchase vs high-income years
• Bonus depreciation phasing out favors earlier purchase
• Standard MACRS depreciation if bonus/179 not optimal
• 5-year property life for aircraft (MACRS schedule)

Depreciation Recapture

What is Recapture?

• If sell aircraft within 5 years, may owe taxes on gain
• Gain = Sale price minus adjusted basis
• Recapture as ordinary income (not capital gains)
• Applied to depreciation claimed

Recapture Example:

• Purchase price: $500,000
• Section 179 deduction: $500,000 (adjusted basis = $0)
• Sell after 3 years for $400,000
• Taxable gain: $400,000 (recapture as ordinary income)
• Tax at 37%: $148,000

State Tax Considerations

Sales and Use Tax:

• Varies by state (0% to 8%+ on aircraft value)
• Some states exempt aircraft used in interstate commerce
• Fly-away exemptions in certain states
• Based aircraft location determines primary tax jurisdiction

Personal Property Tax:

• Annual tax on aircraft value in many states
• Rates: 0.5% to 4% of assessed value annually
• Can be significant ongoing expense
• Some states exempt business aircraft

Frequently Asked Questions

Can I deduct full aircraft cost in year of purchase?

Yes, if aircraft used for business more than 50% and you elect Section 179 depreciation (up to $1.22M in 2025). Alternatively, combine bonus depreciation (40% in 2025) with Section 179 to potentially deduct full cost.

What percentage of aircraft use must be business?

Must exceed 50% business use to qualify for Section 179 and bonus depreciation. Under 50% business use limits you to standard MACRS depreciation on business portion only. Maintain detailed flight logs documenting business purpose.

Are aircraft loan interest payments tax deductible?

Yes, interest on aircraft loans used for business purposes is deductible business expense. Allocate interest deduction based on business use percentage. Personal use portion not deductible (unless qualifies as second home mortgage interest).

What happens if I sell aircraft after claiming depreciation?

Depreciation recapture applies. Gain (sale price minus adjusted basis) taxed as ordinary income up to depreciation claimed. Example: $500K purchase, $500K depreciation, $400K sale = $400K ordinary income. Hold 5+ years to minimize recapture impact.

Should I put aircraft in LLC for tax purposes?

Consult tax advisor. LLC ownership provides: clearer business/personal separation, simpler expense tracking, liability protection, easier depreciation. Drawbacks: potential complexity in personal use reimbursement, state filing fees. Depends on use case and state laws.