What is Aircraft Depreciation?

Jim B.

Aircraft depreciation refers to the amount of value lost by an airplane or other type of aircraft used for business purposes over the time that it is used. This depreciation must be properly measured by aircraft owners, as it is necessary to write it off on tax reports as an expense. The amount of aircraft depreciation is dependent on how the aircraft is used and the method of depreciation that is applicable. Each component of an aircraft depreciates at a different rate, and this rate may be affected by periods of maintenance or overhaul performed by the owner.

An airplane in flight.
An airplane in flight.

The use of an aircraft for business purposes is a pricey expense that may be written off by business owners as long as it adheres to tax laws. It is important to realize that the aircraft loses its value over the period of time it has been used, and this difference must be realized on tax returns. This process, known as aircraft depreciation, is dependent on several factors that must be understood by plane owners when expensing their aircraft for tax purposes.

A man on an airplane.
A man on an airplane.

How the aircraft is used is essential when measuring the amount of aircraft depreciation. The more that the airplane is used for personal purposes, the less chance it will be available for favorable depreciation estimates. In the United States, the Internal Revenue Service diligently checks to see how essential the aircraft is to business endeavors when determining the depreciation rates. If the plane is co-owned as a partnership of some sort or yields income to the owner as a rental property, it will also affect the depreciation.

What method of depreciation is used is dependent on how tax officials view the use of the airplane. The more favorable method to plane owners is the declining balance method, as it allows the owner to write off the largest amount in the year that the plane is purchased and then a declining amount each successive year. By contrast, the straight-line method depreciates the same amount from the aircraft's value each year. No matter the method of depreciation used, aircraft owners must always be cognizant that the depreciation applies each year to the plane's current value, which is the original value minus what has already been depreciated.

An aircraft depreciates in parts, so to speak, based on the life expectancy of the various components that make it up. For example, the mechanical structure is depreciated based on a 25-year life expectancy, while engines and spare parts have 10-year expectancies and landing gear just a 7-year expectancy. In addition, any efforts to maintain these differing parts or overhaul them that raise their value will obviously cut into the depreciation amount for the particular year in which the project was undertaken.

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