Scott Gault, Hillsborough County Market President, The Bank of Tampa
In the constantly evolving landscape of tax regulations, understanding and utilizing bonus depreciation can significantly enhance a business’s financial strategy. This powerful tax tool allows businesses to accelerate the deduction of asset costs, providing substantial first-year tax relief. If Congress doesn’t make any changes to the current tax law, the opportunity to take advantage of significant tax saving will sunset in 2026. Here’s an in-depth look at how bonus depreciation works and how it can benefit your business, particularly when purchasing aircraft.
What is Bonus Depreciation?
Bonus depreciation permits businesses to deduct a specific percentage of an asset’s cost in the first year of purchase. The remaining cost is then depreciated over subsequent years using regular depreciation methods or Section 179 deduction. The tax benefit was originally set to expire in 2020, but the Tax Cuts and Jobs Act (TCJA) of 2017 dramatically altered this landscape.
With the current tax law, if you purchase an aircraft in 2024, you may deduct 60% of the purchase price of the aircraft on your 2024 tax returns using bonus depreciation. The remaining 40% would be deducted over the next five years. In 2025, the bonus depreciation will be reduced to 40%, in 2026 to 20%, and then there will no longer be bonus depreciation starting in 2027. After 2026, bonus depreciation is scheduled to be unavailable for general capital equipment and aircraft. The clock is ticking, so if you’re contemplating making a purchase or tax write-off, now is the time.
Bonus depreciation can significantly reduce the initial tax burden associated with aircraft purchases. This is especially beneficial for businesses requiring large capital expenditures for aircraft, as it allows them to recoup a substantial portion of the purchase cost in the first year.
Qualifying for Bonus Depreciation
To leverage bonus depreciation for aircraft, the asset must meet specific criteria:
- Useful Life: The aircraft must have a useful life of 20 years or less.
- Acquisition: The aircraft must be purchased from an unrelated party, ruling out gifts or inheritances.
Under prior law, only new property qualified for bonus depreciation. However, the TCJA now allows both new and used aircraft to qualify from 2018 onward.
Bonus Depreciation vs. Section 179
While both bonus depreciation and Section 179 expensing provide substantial tax relief, they have key differences:
- No Annual Dollar Limit: Bonus depreciation is not subject to an annual dollar limit.
- Usage Requirement: The over 50% business use requirement applies only to listed property, such as aircraft.
- Profit Limitation: Bonus depreciation is not limited by annual business profit.
Often, assets like aircraft may qualify for both Section 179 deduction and bonus depreciation. In such cases, businesses can choose which method to apply, or they can combine both. If both methods are used, Section 179 must be applied first, followed by bonus depreciation, and then regular depreciation if necessary. To qualify for both Section 179 and bonus depreciation, the aircraft must be purchased and placed in service during the tax year. “Placed in service” means the aircraft is ready and available for its intended business use.
Maximizing Your Tax Strategy
Understanding and applying bonus depreciation can offer significant tax advantages, especially in conjunction with other depreciation methods. By leveraging these benefits, businesses can optimize their tax strategy, enhance cash flow, and invest further in growth opportunities. For personalized advice, consult with a tax professional to ensure you are maximizing your tax benefits under the current laws.
By staying informed and proactive about tax regulations, business owners can navigate the complexities of depreciation and make strategic financial decisions that support long-term success.
Aircraft Financing at The Bank of Tampa
At The Bank of Tampa, our team of aviation financing experts specializes in corporate and personal aircraft financing for both fixed-winged and rotary aircraft. We offer financing for new and used purchases and aircraft refinancing. We understand the intricacies of aviation financing and can assist you through each aspect of purchasing an aircraft, including coordination with the Federal Aviation Administration. If you are interested in learning more about private aviation financing options, please contact me at sgault@bankoftampa.com.
About Scott Gault
Scott serves as the Hillsborough Market President at The Bank of Tampa. In his role, he is responsible for the overall leadership and business development efforts for the bank’s Hillsborough market. Additionally, he has enterprise responsibility over the bank’s Small Business Administration (SBA) and Middle Market banking teams. Scott offers more than 30 years of experience in the financial services industry, much of which was focused specifically on aviation financing. Scott serves on the University of South Florida’s Muma College of Business Executive Advisory Council. Additionally, he serves on the board of directors for St. Anthony’s Hospital Foundation, WEDU PBS and the Tampa Bay Chamber of Commerce. Scott holds a master’s in business administration with a focus in international finance from Florida Metropolitan University. Scott earned his undergraduate degree from Fairleigh Dickinson University in Teaneck, New Jersey. He is also a GE Capital trained Six Sigma Green Belt.
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