President Donald Trump signed into law a sweeping tax-and-spending bill on July 4 that reinstates 100% bonus depreciation for qualified property, including business aircraft.
The provision, effective for property placed in service on or after January 19, 2025, restores full expensing for both new and pre-owned aircraft used in business under IRS guidelines.
The change comes as part of the broader “One Big Beautiful Bill Act.” a multitrillion-dollar legislative package passed by Congress in late June. The bonus depreciation measure reverses the phaseout schedule established in the 2017 Tax Cuts and Jobs Act, which had reduced bonus depreciation to 60 percent in 2024 and was set to decline further in 2025.
Under the newly enacted provision, businesses purchasing eligible aircraft may deduct 100 percent of the acquisition cost in the year the aircraft is placed in service, subject to existing IRS requirements for business use and other qualifications. The tax benefit applies to both factory-new aircraft and used models that meet the criteria.
Industry Support
Industry groups, including the National Business Aviation Association (NBAA) and Aircraft Owners and Pilots Association (AOPA), have expressed support for the reinstatement, citing its potential to stimulate aircraft sales, support aviation-related jobs, and improve access to capital.
“Bonus depreciation delivers long-term stimulus to industries like general aviation, which provides high-skill, and high-paying, jobs for more than 1.1 million Americans, and is responsible for generating $219 billion in economic activity in the United States annually,” NBAA stated.
The legislation was signed during a July 4 ceremony at the White House and is now in effect. The IRS is expected to issue guidance on implementation and compliance in the coming months.
According to the legislative text, the provision is permanent, with no scheduled phaseout. Industry analysts expect increased aircraft acquisition activity in the second half of 2025, particularly as buyers seek to capitalize on the restored tax treatment during a period of elevated interest rates and tightening capital conditions.
For aircraft to qualify, they must be used at least 50 percent for business purposes, and the taxpayer must meet other IRS substantiation and usage documentation requirements. This includes noting each passenger on every flight, including children over the age of two, and the purpose of each passenger.
For example, let’s say there is a business engagement in another city and you opt to fly there. You and your significant other are attending on behalf of the company, and your three kids are going along to spend time with their grandparents, who live in the area. The log should show you, the business purpose being the business engagement you are attending, your spouse with the same notes, and then each child traveling for personal reasons.
While it’s all Part 91 and you may have left the ramp thinking of the flight as 100 percent business purpose, the IRS may view this as 40 percent business purpose, 60 percent personal. In this way, you may fall below the threshold on an annual basis. Keeping track of these details along the way and being cognizant of where you are before any yearend holiday trips will help avoid an unpleasant surprise at tax time.
Bonus depreciation is an important incentive for businesses that are considering capital investments like buying aircraft. Without the return of 100 percent bonus depreciation, businesses were looking at a near term return to the typical depreciation schedules where Part 91 owners may only expense 20 percent of the cost of the aircraft in the first year, and thereafter must follow a six year schedule. The MACRS depreciation schedule for Part 135 starts at 14.29 percent in the first year and runs seven years out.
With aircraft often trading hands every three to five years, businesses may not get the full benefit of the depreciation schedule without some form of bonus depreciation. Couple this with the fact that business environments are cyclical, and some really good years need to fund much leaner years. To do that, companies retain as much cash flow as possible by limiting tax liability in those good years.
Bonus depreciation is a tool that can allow a business to invest in a mission critical asset and protect cash flow by lowering tax liability in a year when the government would otherwise be calling. That means more liquidity kept on hand and a stronger business overall.
So, How Does It Work?
Let’s say a company makes $3 million before taxes in a given year. If it is assumed there is no existing depreciation, the company would have a tax liability of 21 percent of that $3 million, or a tax bill of $630,000. That is cash the company will have to pay that can no longer be invested in the company in the form of hiring, benefits, equipment or new technology. It is also cash out of the company and not available to shareholders for dividends, distributions or to repurchase stock.
Now let’s say the company purchases a new Piper M700 Fury, because time is money and the Fury is all speed with 700 hp.
The Fury has a base price of $4.1 million, and for easier math, let’s say it is negotiated to a clean $4 million. With standard depreciation, the company could reduce net profit before taxes (NPBT) from $3 million to $2.2 million by taking 20 percent of the cost of the Fury as depreciation expense in the first year. The company’s tax bill would be $462,000.
That is still a sizable amount of cash that will leave the company and not benefit the shareholders, the company or its employees. With bonus depreciation, the company may opt to claim more of the cost of the Fury as depreciation expense during the year in review, lowering taxable income to zero.
Will all businesses take advantage of 100 percent bonus depreciation? No. Bonus depreciation accelerates the reduction in the value of certain assets on the balance sheet, so using any level of bonus depreciation should be a case by case analysis. For businesses that buy a considerable amount of equipment with financing, that financing may come with certain restrictions or covenants on both cash flow and the state of the company’s balance sheet.
While depreciation is considered an addback for analyzing cash flow coverage covenants, it creates a disjointed relationship between recurring depreciation levels and allocations for maintenance capex. Lenders who do not have a firm grasp on a borrower’s replenishment needs, may rely too heavily on the depreciation as an add-back to get a loan approved, putting both the bank and the borrower in a weaker position because that addback is not really free cash flow available for debt service or other fixed charges.
Bonus depreciation also creates a more leveraged balance sheet position, where assets are potentially reduced up to 100 percent in the first year, but the loan used to finance those assets remains on the balance sheet in full, creating a negative equity position in those assets, and potentially for the balance sheet as a whole.
Whether governed by financing covenants or not, companies should view bonus depreciation as a tool, with very effective usable levels below 100 percent depreciation. These case-by-case considerations allow CFOs and company executives to be more strategic, equipped to manage cash flow and the balance sheet to ensure minimal tax liability and maximum liquidity over the long term.
