Don’t Leave Your Airplane Depreciation Coming in on a Wing and a Prayer

For many, a private jet seems like the ultimate work perk. No security to get through, no mad dash to a boarding gate, and no crying babies. And on top of that, you could qualify for tax deductions for the airplane for your company. What could be better? This, of course, is a fantasy. The reality is that taxpayers who wish to take these deductions must keep detailed records and be able to prove that the airplane usage was for a business purpose, or risk steep adjustments by the IRS.

Airplane Travel as a Necessary Business Expense

IRC Sec. 162 allows a taxpayer to take deductions for ordinary and necessary expenses incurred in the course of an ongoing trade or business. IRC Sec. 274(a) modifies IRC Sec. 162 by disallowing deductions for flight-related expenses that are used for entertainment, amusement, recreation, or qualified transportation fringes, as defined in IRC Sec. 132(f), which includes air travel provided for non-business purposes. Taxpayers are encouraged to maintain detailed records of their flights, including the passengers on each flight and their purpose for using the company jet, to demonstrate that the costs of the flights were ordinary and necessary business expenses. If the plane is not solely used for business, taxpayers will have to allocate costs between business and non-business flights under Treas. Reg. Sec. 1.274-10(e).

Aircraft Depreciation Limits

Aircraft are generally depreciated under MACRS using the 200% declining balance method, then switching to the straight-line method over five years. Depreciation deductions are limited depending on the percentage of flights that are taken for business versus personal use. IRC Sec. 280F limits depreciation deductions where less than 50% of the flights are business-related. In such cases, the taxpayer must instead use the alternative depreciation system (ADS), which would be the straight-line method over six years, with prior excess depreciation recaptured as income.

As amended by the Tax Cuts and Jobs Act, IRC Sec. 168(k) allows taxpayers to take what is known as “bonus depreciation” for new and used aircraft that were used predominantly for business purposes.  Since 2017, taxpayers have been able to expense up to 100% of the cost of the aircraft in the year it was purchased. Beginning in 2023, bonus depreciation began phasing out, with a 20% reduction in the bonus depreciation allowed each year. In 2025, the bonus deduction was scheduled to be 40 percent.

If predominantly used for business purposes, aircraft owners are also eligible to elect to expense costs under IRC Sec. 179, subject to an annual $1 million limit (and other limits reducing this cap based on business income). While this may not cover the full cost of the plane, the use of IRC Sec. 179 expensing can be attractive for state income tax purposes, as many states do not conform to bonus depreciation.

Legislative Changes to Depreciation

The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, and permanently restores 100% bonus depreciation for qualified business property, including airplanes, acquired and placed in service after January 19, 2025. Unlike the TCJA, there is no phasedown of the bonus depreciation amounts allowed. This will significantly accelerate deductions for new aircraft. And if bonus depreciation does not quite fit the tax profile, taxpayers can still make an election under IRC Sec. 179, the annual limitation for which was raised to $2.5 million under the OBBBA.

These changes mean taxpayers purchasing any aircraft will now have more options to take accelerated expense deductions, which in turn could enhance cash flow and offset income. But make sure that you use that aircraft predominantly for business purposes, and keep meticulous records to substantiate business use, or you may be hit with sky-high taxes from adjustments.

IRS Audit Campaign

Although the law clearly allows for the depreciation of aircraft used for business purposes, the IRS has expressed concerns about potential abuse. To this point, the IRS announced an audit campaign in February of 2024 to examine when and whether owners of an aircraft are able to deduct the costs associated with airplane usage. These campaign examinations are still ongoing, with the IRS proposing large adjustments to taxpayer deductions from operating airplanes that are used for both business and personal use.

While the recent changes to depreciation and IRC Sec. 179 are welcome news for taxpayers purchasing an aircraft, taxpayers should still be wary of the potential for an adjustment. Taxpayers should maintain meticulous records to demonstrate that their airplane usage has a bona fide business purpose, allowing them to claim these deductions. If you have concerns about the potential for an IRS audit, reach out to our team today.