Aviation Benefits Included in New Tax Proposal

The bipartisan, bicameral bill could help lower depreciation and interest costs.

The tax bill with aviation benefits is considered a foundation for big changes expected in 2025. [John Gallagher]

A three-year tax framework unveiled this week in both chambers of Congress includes lucrative provisions that could help boost profits and lower operational costs for aircraft buyers.

The proposal, the Tax Relief for American Families and Workers Act of 2024, has bipartisan support. In exchange for Democrat-backed language to bolster the Child Tax Credit, it restores tax deductions—supported by Republicans—that were eliminated in the 2017 Tax Cuts and Jobs Act, the signature tax package passed under the Donald Trump administration, to help balance revenue lost as a result of cutting the U.S. corporate tax rate from 35 percent to 21 percent.

Those Republican-backed provisions include restoring accelerated depreciation for capital investments and providing more generous deductions for interest expenses.

Notably for aircraft purchases, the plan extends the allowance of a 100 percent bonus depreciation deduction for property placed in service after December 31, 2022, and before January 1, 2026.

“If you were to purchase a major capital asset, such as an airplane, the bonus would allow you to deduct the full cost in the first year,” tax policy expert James Lucier, founding partner of Washington, D.C.-based Capital Alpha, told FLYING.

“An airplane is quite an expense, so it would be a great benefit to take the full deduction and see that benefit right away.”

Lucier also pointed out that the bonus depreciation provision becomes even more powerful as a protection against inflation.

“If inflation is running at 5 percent a year, and you have to wait seven years to take full deduction of an airplane purchase, that’s a significant impact,” he said. “The decline in the purchase power of money over time means you’ll never get the full deduction if you have to wait seven years.”

The new tax package also temporarily extends the EBITDA limitation under section 163(j) of the tax code to apply to taxable years beginning before January 1, 2026.

“For purposes of the section 163(j) interest deduction limitation, adjusted taxable income is computed without regard to the deduction for depreciation, amortization, or depletion for taxable years beginning before January 1, 2026,” according to a detailed description of the legislation.

Said Lucier: “This means a bigger tax deduction for interest expense, which reduces your borrowing costs. Companies think about operations and finance together, so the better your cash flow from financing operations, the more it will help with operating expenses.”

As in past implementations of bonus depreciation, the move stands to help support the general and business aviation market through the coming year, as softening looms on the horizon post-pandemic.

Fast Track in the House

Congress is attempting to place the tax plan on a fast track. On Friday the U.S. House Ways and Means Committee marked up and passed the bill by a 40-3 vote—a positive indicator for the prospects of the legislation passing the full chamber. The legislation has yet to be taken up by the Senate Finance Committee, which has jurisdiction over the legislation in that chamber.

In addition to strong backing in the House, the bill also has support of business interests, which has sway on both sides of the political aisle.

“This looks to be relatively reasonable, bipartisan legislation that has a good chance of passing the House but probably not enough to get enacted into law,” said Loren Smith, a transportation policy analyst with Skyline Policy Risk Group. “However, it’s very much worth paying attention to even if it fails, because it will likely become the starting point for negotiations in 2025, which will be a very big tax year in Congress. These business provisions will be a major focus.”

Based in Washington, D.C., John specializes in regulation and legislation affecting all sectors of transportation. He has covered rail, trucking, maritime, and aviation since 1993 for a variety of publications based in the U.S. and the U.K. John began business reporting in 1993 at Broadcasting & Cable magazine. He graduated from Florida State University, majoring in English and business.

Subscribe to Our Newsletter

Get the latest FLYING stories delivered directly to your inbox

Subscribe to our newsletter