Aviation tax 101 can feel overwhelming for aircraft owners navigating sales, depreciation, and replacement strategies. Recent legislation has revived powerful incentives—like 100% bonus depreciation—that can dramatically reduce taxable income when timed correctly. Understanding how business use, location, and purchase timing affect eligibility is now more important than ever. With smart planning, aviation tax 101 becomes a valuable tool for maximizing financial benefits in today’s market.
“From the seller’s viewpoint, for tax mitigation you look at the recapture of depreciation and what you need to do to address that,” Scott Burgess, Partner at Aviation Legal Group outlines.
In terms of tax liability arising from aircraft sales, the only thing US sellers must bear in mind is the amount of federal (and possibly state) income tax for which they will be liable on any capital gain they realize on selling their aircraft, he adds.
If the seller sells the aircraft but does not replace it, then they’re liable for the income tax due on the amount of capital gain they have realized.
But if they replace the aircraft they’ve sold with a different aircraft, then they will be able to use the depreciation amount available from the replacement purchase to offset some, or all, of the income tax which would have otherwise been payable.
For instance, if a seller bought an aircraft for $10m originally and during their ownership has depreciated it on their balance sheet to $5m, selling the aircraft for $9m, the seller is left with a $4m capital gain on which federal income tax would be due for that tax year, Burgess illustrates.
Depending on whether the seller is an individual or a corporation, the federal income tax rate on that $4m capital gain would vary from 37% to 21%. The level of state income tax due would vary depending on the state in which the corporation or individual is officially resident – and in some US states they would be liable for very little or no state income tax at all.
However, Burgess notes, if upon selling their original aircraft for $9m the seller then buys a replacement aircraft for $15m, they can offset the capital gain realized from the sale of the original aircraft by the depreciation amount allowable in the same tax year on the purchased replacement.
In the hypothetical case above, the seller would be able to offset their $4m capital gain on the aircraft they sold with a depreciation amount of up to $15m – producing a net income tax offset of up to $11m.
The Return of 100% Bonus Depreciation
The recent enactment of the One Big Beautiful Bill Act (OBBBA) of 2025 ensures that if an aircraft seller wishes, in the same tax year as the sale they are now able to offset any capital gain they realize from that sale by depreciating to 100% of the purchase amount of the replacement aircraft.
However, the provision only applies as long as at least 50% of the newly purchased aircraft’s use is business-related (for instance, for private business use or for charter operations conducted under an FAA Air Carrier Certificate).
The aircraft must also be based and primarily used within the United States and it must have been placed into use after January 20, 2025.
Furthermore, Aviation Legal Group advises in a briefing note sent to clients in July, “If 100% of the use is business-related, 100% of the tax basis and qualified operating costs may be depreciated in the first year. Otherwise, the deduction is pro- rated based on business-use percentage versus overall utilization”.
That is the ‘100% bonus depreciation’ provision beloved of US aircraft owners and a cause for celebration among brokers sourcing and handling domestic deals, due to the stimulus it provides for sales and purchases of used aircraft within the massive US domestic market because of the tax- sheltering opportunities it affords owners.
Originally enacted during the first Trump Administration in the Tax Cuts and Jobs Act of 2017, 100% same-year bonus depreciation on newly acquired capital assets stepped down in 20% increments from 2022 and was due to ‘sunset’ in 2027.
Under the new OBBBA federal tax legislation, however, 100% bonus depreciation on capital assets has become a permanent feature of the US tax code, unless and until it is ended by new tax legislation passed by Congress and signed into law by the President.
The taxable-income recapture capability it provides aircraft owners means “bonus depreciation is the gift that keeps on giving until you sell the airplane and get out of aviation for good,” says Burgess – noting that after individuals and corporations first buy an aircraft, they tend to be owners of aircraft for life.
Depreciation Timing Opportunities
In practice, says Burgess, many owners cannot use the entire amount of bonus depreciation available to offset their taxable income when purchasing an aircraft for the first time, or as a more expensive replacement for one they have sold. That’s because they don’t have enough taxable income in that year to use the full 100% depreciation amount.
However, the federal tax legislation allows them to roll over to the following tax year the remaining depreciation amount they have available, he adds. If they can’t use the entire remaining amount in that tax year, the amount still remaining will roll over and be available in the next tax year – and so on.
The substantial amounts of taxable income sheltering that bonus depreciation now allows aircraft sellers and buyers will in many cases create timing opportunities for them, Burgess reckons.
On one hand, it may well create milestones in time for sellers in terms of when it would be best for them to sell their existing aircraft and buy replacements, from the viewpoint of their expected total taxable income in certain years as individuals or their forecast corporate pre-tax profitability in future years as companies.
For buyers, the income tax-offsetting possibilities allowed by 100% bonus depreciation may persuade them to delay purchasing an aircraft – for the first time or as a more expensive replacement – from one year until (say) the next, says Forrest Owens, Principal of The Law Firm of L. Forrest Owens P.A. dba Aviation Legal Counsel.
They would do so because they expected their corporate or individual taxable income in that following year to be greater than in the previous year. That extra amount of taxable income could be offset to a greater extent by the substantial amount of bonus depreciation made available by the purchase of the new or replacement aircraft as a capital asset.
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Original article published on avbuyer.com
