If you have been considering purchasing an aircraft for your business, now is the time. 2022 is the last year for business owners to take advantage of the 100% bonus depreciation, with a few exceptions for newly manufactured aircraft delivered in 2023. As the end of the year quickly approaches, tax-efficient growth is a major consideration for most business owners. Purchasing an aircraft for business is a strategy most companies consider–and with the 100% business write-off, it is a good and practical strategy.
Businesses looking to take advantage of bonus depreciation at the 100% rate must place their used or new aircraft in service before the start of 2023.
Fortunately, if purchasing an aircraft isn’t an option for you in 2022, you can still be entitled to claim bonus depreciation when you are ready to purchase, though at a reduced rate. The 100% rate is expected to reduce by 20% yearly over a 4-year step-down. Here is an expert analysis of the 100% bonus depreciation and how to take advantage of this tax incentive for your business aircraft purchase.
In 2017, Congress passed The Tax Cuts and Jobs Act which amended Section 168(k) of the Internal Revenue Code (“I.R.C.”). This section allows taxpayers to claim a depreciation deduction in the year they place the qualified property (in this case, business aircraft) in service.
The bonus depreciation deduction amount is a percentage of the taxpayer’s adjusted basis in the aircraft. Furthermore, the percentage is determined by the year a business places the aircraft in service. This new law allows for a 100% write-off for qualified property purchases.
According to the Tax Cuts and Jobs Act (TCJA), the applicable percentage for aircraft placed in service from 2018 to the end of 2022 is 100%. However, still on the same provision, the percentage will reduce by 20% every year until the end of 2026. This means that bonus depreciation will no longer be an option for businesses intending to put aircraft in service or finance existing aircraft at the start of 2027.
How Does Bonus Depreciation Work
Bonus depreciation is optional. However, if you want to take a considerable bonus depreciation amount, it is advisable to start as early as possible before the end of 2022. Here is a breakdown of the bonus depreciation percentage after the tax reforms.
- 100%, effective from September 27, 2017, until December 31, 2022
- 80% effective from January 1, 2023, until December 31, 2023
- 60% effective from January 1, 2024, until December 31, 2024
- 40% effective from January 1, 2025, until December 31, 2025
- 20% effective from January 1, 2026, until December 31, 2026.
Eligibility for Bonus Depreciation
All property must match the qualifications of qualified property under I.R.C. § 168(k) to qualify for bonus depreciation. These eligibility requirements include:
- The property must have a useful life of 20 years or less
- The property must be placed in service before January 1, 2027
- The property must meet an original use or acquisition date requirement.
Bonus depreciation effectively creates accelerated deductions and tax savings, which means you can increase your asset base with an aviation lease or suitable loan sooner. Unfortunately, this provision is time-barred and most aircraft won’t qualify for the 100% bonus depreciation in 2023. That’s just more incentive to take advantage of the 100% bonus depreciation while it lasts.
Are you ready to take advantage of bonus depreciation to finance your business aircraft purchase? If so, USAF is here to help. Avoid missing out on the 100% rate and let our aircraft finance experts help you finance your business aircraft purchase this year.
Start the process today by using our free loan calculator to see how much aircraft you can afford for your business.