Taking Advantage of Bonus Depreciation in 2024

In traditional accounting, depreciation schedules allow corporations and individuals to declare a certain percentage of loss on depreciable assets, which in turn lowers profits and subsequent tax burden. 

At the introduction of bonus depreciation, aircraft owners could realize 100 percent depreciation in the first year, a massive boon to both the aviation industry and businesses that could take advantage of the tax benefits. 

Bonus depreciation can even be utilized to create a net loss in your accounting. If the bonus depreciation deduction creates a net operating loss for the year, you or your company can carry the net operating loss forward to offset next year’s income and further optimize your tax burden.

Based on the 2017 renewal of the Tax Cuts and Jobs Act, bonus depreciation has been slowly phasing out, decreasing by 20 percent each year since December 2022. In 2024, the additional first-year depreciation deduction remains at 60 percent, which applies to all eligible assets purchased prior to December 31. 

Even at 60 percent, bonus depreciation on aircraft provides a vastly accelerated depreciation schedule, meaning that financing an aircraft in 2024 can still reduce your tax burden significantly and offset interest rates. 

According to Daniel Cheung, the principal and co-founder of Aviation Tax Consultants, it’s possible that Congress will renew bonus depreciation benefits or even make them permanent in 2025, reversing the yearly reductions. 

“There’s even a chance that Congress could act before the end of this year,” Cheung said. “It’s a popular policy with bipartisan support.”

While some businesses may be waiting to make an aircraft purchase based on this speculation, there is still a compelling reason to finalize your purchase in the fourth quarter: Any deductions are a function of the percentage of qualified business use in the year of acquisition. To avoid tax penalties, any aircraft must log more than 50 percent of its usage hours as qualified business use during its depreciation schedule.

“If you close on a new plane in December and make one flight for business purposes, you can lock in the first year’s depreciation as 100 percent business use,” Cheung said. “Even with uncertainties about the economy and legislation, the fourth quarter is still a popular time to buy an aircraft, and for good reason.” 

As it stands, there is no guarantee that bonus depreciation percentage will remain a permanent tax benefit. Currently, it is still set to decrease until it tapers off entirely after December 31, 2026—so the window is closing.

With the holidays approaching, it’s vital to get started on the preapproval process sooner than later. Many asset managers will be looking to finalize large purchases to offset profits and avoid higher taxes, and the high demand for financing at the end of the year means that you could miss out on a higher percentage of bonus depreciation for 2024. 

Thankfully, FLYING Finance makes the process easy. Discover the best way to secure aircraft financing from a team that understands aviation. FLYING Finance can help you navigate a successful purchase from start to finish.