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Answers for Pilots: Tax Time

2014 Tax Update for Aircraft Owners

Tax time is upon us and AOPA has information on what has changed for the 2014 tax year for aircraft owners who use their airplanes for business.

AOPA’s Pilot Counsel, Ray Speciale, who is a CPA, as well as a flight instructor, has updated AOPA’s online tax guide for aircraft owners and pilots. Here are the highlights of the update.

Expanded information for taking a tax deduction for depreciation of an aircraft includes a recent tax court case. Speciale states:

When you use your aircraft for business or income-producing purposes, the tax laws will allow you to recover the cost of the aircraft over a specified period of years, so that a portion of your aircraft cost is deducted each year. This tax deduction is known as depreciation. If you use your aircraft for personal purposes as well as for business or income-producing reasons, you must allocate depreciation expenses to only that portion of the aircraft used for business or income-producing purposes. It is also important to note that if you want to depreciate your aircraft, you must have placed the aircraft in service prior to the year in which you seek a depreciation deduction. IRS Regulations state that property is first placed in service when it is "in a condition or state of readiness and availability for a specifically assigned function." In one recent case (decided in December 2013), the Tax Court denied bonus depreciation to a taxpayer who took delivery of an aircraft on December 30, 2003. The aircraft was operational, but there were still modifications to be made in early 2004. The IRS took the position that the aircraft could not be placed in service when it was not yet available for its "specifically assigned function." The court noted that an asset does not need to be used before it is regarded as being placed in service, but the mere fact that it is used does not automatically mean that it has been placed in service. See Brown, T.C. Memo 2013-275.

Speciale also discusses the recently signed “Tax Increase Prevention Act,” which extends 50 percent bonus depreciation through tax year 2014, and in some cases through 2015 for new aircraft purchases as well as new equipment purchased and installed in used aircraft. He explains that new aircraft and equipment must be original or first-use, used primarily for business purposes, and must qualify for accelerated depreciation under MACRS (modified accelerated cost recovery system). New aircraft must also meet certain delivery and contractual requirements in order to qualify. Aircraft to be used in Part 91 (non-commercial operations), have a set of additional requirements to meet involving cost and production period. Details are available online. Again, a reminder that aircraft not used predominantly (i.e., 50% or more) on an annual basis in your trade or business are not eligible for bonus depreciation, although they may qualify for other kinds of deductions.

As always, AOPA urges you to consult with a tax professional to discuss your personal situation. Click here to read The Pilot’s Guide to Taxes online. If you have questions, please call the aviation technical specialists in AOPA’s Pilot Information Center, 800-USA-AOPA (872-2672), Monday through Friday, between 8:30 a.m. and 6:00 p.m. Eastern Time.

Kathy Dondzila

Kathleen Dondzila King

Manager, Technical Communications, Pilot Information Center
Technical Communications Manager, Kathleen Dondzila King, joined AOPA in 1990 and is an instrument-rated private pilot.
Topics: Ownership, Taxes, Advocacy

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