Aircraft Bonus Depreciation: Navigating 2026 US Tax Rules
Understand the phase-out of bonus depreciation and its impact on aircraft acquisitions.
In 2026, the US bonus depreciation provision, enacted under Section 168(k) of the Internal Revenue Code, undergoes a further reduction to 20%. This pivotal change significantly influences the financial modelling for aircraft acquisitions, impacting both corporate and individual purchasers leveraging business-use assets.
How it works
Bonus depreciation allows businesses to deduct a substantial portion of an asset's cost in the year it is placed into service, accelerating tax benefits. While the standard Modified Accelerated Cost Recovery System (MACRS) dictates a 5-year recovery period for most business aircraft, Section 168(k) has historically permitted an immediate, additional deduction. For 2026, this 'bonus' component will be 20% of the asset's depreciable basis, declining from the 100% available in prior years and 60% in 2024. The remaining 80% is then depreciated under MACRS, typically via the 200% declining balance method, switching to straight-line to maximise deductions. A critical caveat is the 50% qualified business-use threshold; failure to meet this can invalidate the accelerated deduction and may lead to recapture.
Typical terms in 2026
The reduced bonus depreciation alters the net present value of tax savings. Lenders and lessors will adjust their underwriting models accordingly. Expect a heightened focus on cash flow stability and the asset's residual value, particularly for higher-value aircraft. Financing structures will continue to feature strong covenants, reflecting market liquidity and risk appetite.
| Tenor (Years) | LTV Range (%) | Rate Range (p.a.) |
| :------------ | :------------ | :---------------- |
| 5-7 | 70-80 | SOFR + 200-350 bps |
| 8-10 | 60-70 | SOFR + 250-400 bps |
Typical residual value assumptions for business jets range from 45% to 55% at 5 years post-delivery, declining to 30-40% at 10 years, contingent on maintenance status and market demand.
Who it suits
Even at 20%, bonus depreciation remains beneficial for profitable entities or high-net-worth individuals anticipating substantial taxable income. Businesses requiring immediate deductions to offset current earnings, particularly those undertaking significant capital expenditures, will find value. The strategy particularly suits owner-operators and charter companies using aircraft predominantly for qualified business purposes, thereby satisfying the Section 280F substantiation requirements. Understanding the timing of the aircraft's 'placed in service' date is paramount for maximising this allowance.
Pitfalls to avoid
Miscalculating the business-use percentage is the primary pitfall, leading to disallowed deductions and potential penalties. Purchasers must maintain meticulous flight logs and substantiation records. Furthermore, assuming that subsequent year tax rules will mirror 2026's is imprudent; ongoing legislative adjustments are always a possibility. Over-leveraging based on historical, more generous depreciation benefits can also expose operators to undue financial risk should market conditions or tax codes shift unfavourably. Ensure your financial models account for the reduced, not eliminated, benefit.
How Mega Aviation helps
Mega Aviation assists clients in navigating the complexities of aircraft financing. We introduce purchasers to a meticulously vetted network of global lenders and lessors, ensuring access to competitive financing solutions tailored to current market conditions and evolving tax landscapes. Our expertise lies in structuring transactions that align with your operational and financial objectives, identifying partners capable of providing sophisticated, bespoke funding. Please note, Mega Aviation operates purely as an introducer and does not act as a regulated financial adviser; clients should seek independent tax and legal counsel regarding depreciation strategies and other financial considerations.