The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, permanently restored first-year 100% bonus depreciation for qualified property, including private aircraft, that is both acquired and placed in service after January 19, 2025. For aircraft owners, understanding how this rule applies, and when it applies, is essential to proper tax reporting and compliance. The interplay between qualified business use tests, entertainment rules, and documentation requirements can be complex, and missteps can lead to audit exposure. 

Qualified Business Use Tests: The Gating Mechanism 

Structuring Considerations: Bonus depreciation for private aircraft use is available only if the aircraft is used more than 50% for qualified business use (QBU) in the year it is placed in service. If that test is not met, the aircraft cannot use bonus depreciation or MACRS at all and instead must be depreciated under the slower straight-line alternative depreciation system (ADS). The tax code treats aircraft ownership differently depending on how it is structured. If an aircraft is held in a separate entity (like a standalone LLC) and leased to an operating business, the qualified business use (QBU) tests can be affected by related-party relationships. Specifically, flights by related parties or 5-Percent Owners (anyone holding greater than 5% of either entity) may not qualify as business use under the tax rules, even if the flight was for legitimate business purposes. This rule is important to understand when deciding how to structure ownership. More precisely, two categories of use by 5-Percent Owners and related persons are carved out of QBU: leasing the aircraft to them and providing flights to them as compensation. A special rule preserves QBU treatment even for that use, however, if at least 25% of the aircraft's total use for the year is core QBU that does not involve 5-Percent Owners or related persons.  Clearing that 25% threshold then lets the remaining business use count toward the more-than-50% test. If QBU later drops to 50% or below during the recovery period, the bonus depreciation previously claimed (in excess of straight-line) is recaptured as ordinary income. 

Holding the aircraft directly through the operating business, rather than through a separate investment entity, simplifies the QBU analysis and reduces compliance risk. 

The Entertainment Disallowance Trap and the Special Depreciation Election 

Entertainment Expenses and Depreciation Disallowance: After the Tax Cuts and Jobs Act of 2017, entertainment expenses are not deductible, regardless of business purpose. The tax code specifies that aircraft are treated as entertainment facilities, so portions of aircraft use that are entertainment-related are subject to this disallowance rule. 

For example, consider a $12 million aircraft with 10% of annual use attributed to entertainment flights: 

• Year 1 Depreciation Deduction: $12,000,000 

• Year 1 Disallowed Amount for Entertainment: $1,200,000 (10% of $12,000,000) 

This interaction between bonus depreciation and entertainment disallowance rules is important to understand for proper tax reporting. The $1.2 million figure is a simplified illustration of the default calculation. In practice, the disallowed amount is determined under one of four IRS-allocation methods (occupied-seat or flight-by-flight, each measured in hours or miles) and is reduced by any amount the passengers must include in income for the flights, so the precise figure depends on the facts. 

Understanding the Election Option: Treasury regulations Reg. 1.274-10(d)(3) provide a technical election that lets private aircraft owners compute depreciation on a straight-line basis over the aircraft's class life solely for purposes of the entertainment disallowance, while still claiming bonus or accelerated depreciation for regular tax purposes. Because straight-line depreciation spreads the cost over several years instead of front-loading it, far less depreciation is exposed to disallowance in the early years. In the example above, the election would limit Year 1 depreciation subject to disallowance to roughly $1 million (straight-line over a six-year class life with the half-year convention), cutting the entertainment-related disallowance to about $100,000 in Year 1 rather than $1.2 million. The election effectively trades one large first-year disallowance for smaller disallowances spread across the class-life period, so its value depends on the facts. It is also consequential as once made, it generally applies to all the taxpayer's aircraft for all years and can be revoked only with IRS consent. It is therefore critical to model the impact of making (or not making) this election before placing the aircraft in service. 

Ownership Structure and Acquisition Timing 

Acquisition Timing Consideration: The bonus depreciation percentage phases down on specific dates. For a $10 million acquisition, the applicable percentage could differ depending on when the aircraft is acquired and placed in service: 

Aircraft acquired on or before January 19, 2025 (for example, under a written binding contract) remains under the pre-OBBBA bonus depreciation phase-down. Under the general rule, that is 40% for property placed in service in 2025, 20% in 2026, and 0% afterward. For certain aircraft, a special category meeting a longer production period and other requirements, the phase down is delayed one year later: 60% in 2025, 40% in 2026, 20% in 2027, and 0% afterward. 

For aircraft both acquired and placed in service after January 19, 2025: 100% bonus depreciation, is now a permanent feature of the tax code under the OBBBA. 

This timing difference can affect the tax treatment significantly. Owners should coordinate the acquisition and placement-in-service dates with their advisors to understand the full tax implications. However, the aircraft acquisition decision should be driven by operational and business needs, with tax implications understood as part of the overall planning process. 

The same framework applies whether an owner buys a whole aircraft or a fractional interest. A fractional share can qualify for 100% bonus depreciation on the owner's portion of the aircraft's cost, provided the owner satisfies the same more-than-50% QBU test and documentation requirements for that interest. The analysis is often more involved for fractional programs, so advisor input is especially valuable. 

Documentation and Audit Resilience 

IRS has prioritized private aircraft audits, targeting personal versus business use allocations at the passenger level, depreciation claims, and recordkeeping adequacy. When audited, IRS requests detailed flight logs with passenger manifests and business purpose notations, maintenance records, and expense allocation worksheets. In 2024, IRS launched a dedicated Business Aircraft Campaign focused on large corporations, large partnerships, and high-income taxpayers.  This initiative remains active. Because aircraft are listed property, every associated deduction is subject to the heightened substantiation requirements of Sec. 274(d). 

The Flight Log Foundation: Taxpayers should implement a contemporaneous flight-log system before placing the aircraft in service. For each flight, record the date, departure and arrival airports, flight hours, passenger names and titles, and business purpose for each individual passenger in detail.  These logs are the evidentiary foundation of audit defense. 

Why does this matter? The QBU tests and entertainment disallowance rules operate at the passenger level. A single flight with mixed passengers (some business, some entertainment, a spouse as guest) requires separate allocation. The Occupied-Seat Method allocates use proportionately. Without passenger-level documentation, the owner cannot defend the allocation if challenged. 

For specified individuals (officers, directors, and owners of more than 10% of the company's equity), maintain a schedule calculating Standard Industry Fare Level (SIFL) income imputation by route. Under Sec. 274(e)(2), the company's deduction for that individual's entertainment flights is limited to the amount the individual includes in income (often the SIFL value); expenses above that amount are disallowed. 

Implementation: Establish the flight-log system before Year 1 operations begin. Reconcile flight data quarterly to ensure QBU tests remain satisfied. Before filing the annual tax return, review all flight logs with tax advisors to recalculate business use percentages and verify that bonus depreciation claims are properly supported. 

An owner who implements a strong documentation system is well-positioned in an IRS examination. An owner without contemporaneous documentation may face challenges in defending positions and could face agent adjustments or penalties. 

The Takeaway 

Private aircraft ownership can be tax-efficient for high-net-worth individuals and closely held businesses under the OBBBA's reinstatement of first-year 100% bonus depreciation. The potential benefit is substantial; however, the path is narrow and heavily scrutinized by IRS. 

Success requires three elements: a properly structured ownership vehicle that integrates the aircraft into business operations; pre-acquisition analysis of qualified business use tests and the entertainment disallowance election; and a rigorous, contemporaneous documentation system implemented before the aircraft is placed in service. 

Given the complexity of aircraft ownership tax rules, working with experienced tax and aviation advisors before acquisition is essential. These advisors can help you: 

• Understand how your specific ownership structure will affect tax reporting, 

• Evaluate the timing implications of acquisition, 

• Analyze the impact of expected use patterns on depreciation calculations, 

• Determine proper documentation requirements for your situation, and 

• Ensure your approach aligns with IRS expectations.