October 21, 2022
Our annual frantic race to closing last minute aircraft deals has begun. We have been fielding numerous questions and scenarios whether an aircraft qualifies for 100% bonus depreciation in 2022:
1. I will take delivery of a green aircraft and my pilots will take a test flight in December. The rest of the interior will be installed in January 2023. Can I take 100% bonus depreciaton in 2022?
2. My sales director called. There may be a delay at factory and the plane will not be completed and delivered until January 2023. I will write a check before December 31 to pay for the plane in full so that I can take 100% bonus depreciation in 2022.
3. I am buying a pre-owned aircraft from overseas. The estimated time to complete the pre-buy, import and FAA registration will be 10-12 weeks. I will close while the plane is overseas and fly a business trip to look for a property in London so that I can capture 100% bonus depreciation in 2022.
4. A major inspection is due for a pre-owned aircraft that I am interested in. Due to parts shortage, the plane will not be ready to fly until January 2023. I will close while the plane is at the maintenance facility and take 100% bonus depreciation in 2022.
5. My friend is selling me an aircraft but he does not want to report recatpure gains until 2023. Therefore, our contract will have a 2022 date for me to capture depreciation in 2022 and he will report the gains in 2023.
The creativity to get an aircraft acquisition completed before year end has reached an unprecedented level! With so many case laws on this topic, the answer is relatively simple and straight forward in my opinion.
2022 100% bonus depreciation can be taken if a business aircraft is placed in service by December 31, 2022.
This definition of placed in service comes from IRS Publication 946:
You place property in service when it is ready and available for a specific use in a business activity. Even if you are not using the property, it is in service when it is ready and available for its specific use.
The second part of this definition may be new to some. It is correct that an actual business flight is not explicitly required in order to prove that an aircraft has been placed in servce. However, if you are counting on a significant tax benefit from depreciating a business aircraft, it is probably to your benefit to positively prove that a business flight took place in 2022, eliminating any doubt if the aircraft was placed in servce.
If a green aircraft does not have seats installed, it is not available for its specific use - to carry passengers.
If a plane is flown overseas only, it fails the predominant US use test for MACRS property.
If a plane is still being manufactured and does not have an airworthiness certificate, it's not available for its inteneded use.
Our advice is simple: take legal title to the plane and close the transaction by December 31, 2022, take a business flight, even on New Year's Eve, place the aircraft in service and enjoy the count down to 2023!