Appreciating the Depreciation
Tax Treatment for Business-Use Aircraft
by Craig A. Max, IV
In addition to the many logistical efficiencies that business aircraft ownership can provide, an aircraft
can also serve as an excellent tax-advantaged investment with a short depreciable tax life and
significant residual value.
When a business or individual buys an aircraft to be used for business purposes, Generally Accepted
Account Principles in the U.S. (GAAP) require that the acquisition cost be spread out for financial
reporting purposes over the estimated useful life of the aircraft, which may be 20 to 30 years or more.
Therefore, only a relatively small portion of that cost will be charged against reported earnings in any
one year. This expense recognition over time is classified as depreciation expense. In contrast to the
GAAP rules, the Internal Revenue Code allows taxpayers to deduct the cost of the aircraft for tax
purposes over a much shorter recovery period.
The following discussion reviews some of the major concepts of aircraft depreciation assuming 50% or
more of the use of the aircraft is for business purposes. If your aircraft is used more for personal than
business use, the Alternative Depreciation System (ADS) would apply. In either case, the regulations
governing cost recovery can be complicated, and the mechanics of calculating your specific
depreciation deduction are outside the scope of this article. Aircraft owners are encouraged to seek
out a qualified tax professional to review individual circumstances.
Tax Depreciation Methods
For tax purposes, there are two general systems for determining the depreciation expense deduction:
straight-line and accelerated. The straight-line method generally mirrors GAAP requirements. The
total cost of the aircraft is evenly deducted over the statutory recovery period required for tax
purposes, as discussed further below. Planes placed in service before 1981 are generally depreciated
using the straight-line method.