🇪🇺The Aircraft as a Tax Manoeuvre: Bonus Depreciation, VAT Recovery and the Price of a Personal Flight

“Buy an aircraft and write off your taxes” comes up in every second conversation about acquiring a jet, and it is not a myth: in the United States the full purchase price genuinely can be deducted against ordinary income in the year the aircraft is placed in service. The myth is that it is easy. The manoeuvre sits inside a set of tests that are examined not on the closing date but across every year of ownership, and failing any one of them reverses the deduction with interest. In Europe the manoeuvre has a different nature — input VAT recovery rather than depreciation — but the same architecture: the relief is granted against genuine commercial use and withdrawn when that use is absent. What follows is the mechanics of both, the price of a personal flight across four jurisdictions, and a catalogue of structures that fail in predictable ways.

The concept

The tax outcome of buying an aircraft is built from three independent layers, and an error in any one of them cancels the benefit of the others:

• Depreciation — how much of the price becomes a deduction and how fast; the American contour, where the manoeuvre proper lives
• Indirect taxes — import VAT and the right to recover it in Europe, excise taxes in the United States
• Personal use — what a flight the passenger does not pay for actually costs

The American manoeuvre: one hundred percent in year one

The One Big Beautiful Bill Act (Public Law 119-21, §70301, signed 4 July 2025) restored full expensing under §168(k) and removed the TCJA phase-down of 80/60/40/20. The provision now carries no expiry date: one hundred percent of adjusted basis in the year the property is placed in service. Interim guidance is Notice 2026-11 of 14 January 2026, pending proposed regulations.

The operative date is acquisition after 19 January 2025. For contracts signed earlier the written binding contract machinery applies: the acquisition date is the latest of the contract date, its effective date, the expiry of all cancellation periods and the satisfaction of all conditions precedent. The contract itself must be enforceable under state law and must not limit damages to less than five percent of the contract price. For an aircraft under construction the self-constructed property exception applies: acquisition is treated as occurring when production begins, with a safe harbor at the point more than ten percent of total cost has been incurred. That is the narrow path for deals started before January 2025.

The remaining parameters of the American contour:

• §168(k)(10) — a one-time election to apply 40% instead of one hundred percent, or 60% for certain aircraft under §168(k)(2)(C). The category survives precisely as the classifier for that election; the old “plus one year” rule for longer production period property disappeared along with the placed-in-service deadlines that OBBBA deleted
• §179 as an alternative: a $2,560,000 deduction limit and a $4,090,000 phase-out threshold for the 2026 tax year (Rev. Proc. 2025-32)
• MACRS: an aircraft in business use under Part 91 is five-year GDS property (asset class 00.21); commercial carriage under Part 135 is seven-year property (class 45.0). Under ADS the periods are six and twelve years straight-line

Three tests that break the manoeuvre

§280F: the aircraft remained listed property

TCJA removed computers and peripherals from the listed property catalogue. It left aircraft where they were. They still fall under §280F(d)(4)(A)(ii) as property used as a means of transportation, which means they face the predominant business use test.

The test has two steps, and that is its defining feature. Qualified business use is first computed excluding leases to a five-percent owner or related persons and flights provided as compensation for services: that “clean” share must be at least 25%. If the threshold is cleared, the percentage is recomputed including the excluded categories, and now it must exceed 50%.

The cost of failure is higher than generally assumed. §280F(b)(1) moves depreciation to ADS straight-line for the current year and every subsequent year. §280F(b)(2) pulls prior-year excess depreciation into income in the year of failure. And §168(k)(2)(D)(i) expressly excludes from qualified property anything to which ADS applies “after application of section 280F(b)” — meaning the right to bonus depreciation is withdrawn along with accelerated depreciation, in full.

§274(a): entertainment flights

After TCJA, deductions for entertainment expenses are disallowed without the old “directly related” and “associated with” exceptions. The aviation-specific rules live in §1.274-10, finalised by TD 9597 on 1 August 2012.

For specified individuals the deduction is allowed only up to the amount included in the passenger's income or treated as compensation, plus any reimbursement that person paid. Actual expenses in excess of the amount included in income are not deductible at all. And “expenses” means everything: pilot and maintenance staff salaries, fuel, landing and take-off fees, hangarage, maintenance, insurance, registration, interest on debt and depreciation. Allocation runs on either occupied seat hours or a flight-by-flight basis, and the chosen method must be applied consistently to every aircraft and every flight of the year.

§469 and §183: a loss with nowhere to go

The structure where an SPV leases the aircraft to the owner's own operating company runs into the self-rental rule (Treas. Reg. §1.469-2(f)(6)). Where the taxpayer materially participates in the lessee's activity, net income from that rental is recharacterised as non-passive and cannot be sheltered by passive losses, while a loss stays passive. The result is the worst of both worlds: profit is not sheltered and the loss does not work.

The exit through the average-period-of-customer-use rule of seven days or less (Temp. Reg. §1.469-1T(e)(3)(ii)(A)) takes the activity out of the rental category but not out of §469: everything then turns on material participation under the seven tests of §1.469-5T.

Sitting above all of this is §183. Three profitable years out of five consecutive years create a presumption of a profit motive; without it, the nine factors of Reg. §1.183-2(b) apply — from the completeness and accuracy of books and records down to the last item on the list, elements of personal pleasure or recreation.

What a personal flight costs

In the United States the imputed income for a personal flight is computed under SIFL (Treas. Reg. §1.61-21(g)): the cents-per-mile rate is applied across the statute-mile bands, multiplied by the aircraft multiple, with a terminal charge added on top and any employee reimbursement subtracted. Rates are published twice a year in separate Revenue Rulings; Rev. Rul. 2026-8, covering the first half of 2026, gives a terminal charge of $54.48, $0.2980 per mile up to 500 miles, $0.2272 on the 501–1500 band and $0.2184 above 1500.

The multiple is what decides the outcome, and it turns on maximum certified takeoff weight and the passenger's status.

On a heavy aircraft the gap between a control employee and an ordinary passenger is close to thirteen-fold, and status is set not by a job title in an employment contract but by the formal test in §1.61-21(g)(8): officers within the lesser of one percent of employees or ten people, the top one percent by pay capped at fifty people, holders of five percent or more, and directors. Family members of a control employee count on the same footing.

For all that, SIFL is the mildest regime in existence: it values a flight at a fraction of the market charter rate. Outside the United States no such mildness exists.

• United Kingdom. S.205 ITEPA 2003: the annual value of the benefit is 20% of the asset's market value at the time it was first applied in providing an employment-related benefit, plus all associated expenses, less any employee contribution. In HMRC's own yacht example (EIM21633) a £25,000 value produces £5,000 of annual value, to which £2,400 of insurance, fuel and mooring is added
• France. A forfait exists for meals, accommodation and cars. There is none for yachts and aircraft — they fall into the residual category of BOI-RSA-BASE-20-20 and are valued pour leur valeur réelle, at the full economic cost of the use provided
• Russia. Article 211 of the Tax Code: the base is the market value of the service determined under the article 105.3 methodology, meaning a comparable charter rather than operating cost. The income enters the main tax base and is taxed on the progressive scale, which for a wealthy taxpayer terminates at 22%

Excise and state taxes

The American fork runs between two regimes, and one of them is always payable. Commercial carriage attracts FET at 7.5% plus a segment fee of $5.30 per passenger (2026, Rev. Proc. 2025-32). Non-commercial operation under Part 91 instead pays the higher fuel excise: $0.219 per gallon of kerosene against $0.044 for commercial aviation.

A separate provision settles an old argument about management companies. §4261(e)(5), introduced by TCJA for amounts paid after 22 December 2017, exempts from FET the payments an aircraft owner makes for aircraft management services and for flights on the owner's own aircraft. The final regulations — TD 9948 of 19 January 2021, §49.4261-10 — defined who counts as the owner and brought the beneficiary of an owner trust inside that definition. For a non-resident holding an aircraft on the N-register through a non-citizen trust, that matters a great deal.

The state layer follows its own logic. A fly-away exemption closes only the sales tax of the state where physical delivery occurred and does nothing to the home state's right to collect use tax at the base. Registering the owning entity in Delaware or Montana does not help: liability follows nexus, meaning the physical presence of the aircraft. The practitioners' formula is “hangar here, pay tax here,” and presence in a state for sixty days or more in a year — including non-consecutive days — can trigger registration requirements even for a non-resident.

The European manoeuvre: recovering input VAT

Here the object of the manoeuvre is not depreciation but eighteen to twenty-three percent of the aircraft's price — the largest single sum in the whole subject.

Article 148 of Directive 2006/112/EC exempts the supply, modification, repair, maintenance, chartering and hiring of aircraft used by airlines operating for reward chiefly on international routes. The criterion attaches to the operator's status, not to the routing of any particular flight, and national law supplies the numbers. France, in article 262 II 4° CGI, requires international services to represent at least 80%, and measures the fraction in UDTKT — unité de trafic kilomètre transporté, where one unit equals a thousand passengers or a hundred tonnes of freight. The assessment is annual, and the administration maintains lists of carriers accepted as meeting the condition so that suppliers need not collect attestations themselves.

On a full import, VAT is paid once at the rate of the country of entry, and recovery is available only against genuine commercial operation. The capital goods scheme then takes over: article 187 of the Directive spreads the adjustment across five years — the twenty-year period exists only for immovable property. The British implementation (VAT Notice 706/2) treats aircraft and vessels worth £50,000 or more excluding VAT as capital items with five intervals. A change in the business-use proportion in any of those years recalculates the deduction previously claimed by one fifth for each affected year. Functionally this is the direct European counterpart of American §280F recapture, and it is what makes “recover now, fly personally later” unworkable.

An owner not established in the EU is left with the Thirteenth Directive 86/560/EEC. Refunds under it are possible, but article 2(2) allows member states to condition them on reciprocity from the third state, and for many jurisdictions no refund is granted at all.

The yacht mirror and the Bacino judgment

For vessels, article 148(a) requires navigation on the high seas and commercial use, and the French article 262 II 2° CGI imposes a double test: a commercial seagoing vessel plus actual navigation en haute mer.

The Court of Justice closed the principal loophole in Bacino Charter Company (C-116/10, judgment of 22 December 2010): the exemption does not apply to services consisting of making a vessel available with a crew, for reward, to natural persons for leisure travel on the high seas. The reasoning is direct — where the vessel is hired by persons using it exclusively for leisure and outside any economic activity, the service does not meet the conditions for exemption, and the relief cannot benefit charterers acting as final consumers. Simply leaving territorial waters achieves nothing on its own: what is examined is the status and purpose of the end user.

After the infringement wave — March 2018 against Cyprus, Greece and Malta, November 2018 against Italy and the Isle of Man — the percentage schemes are gone. In February 2019 Malta replaced its hull-length scale with an actual effective use and enjoyment test: VAT applies to the share of lease payments matching genuine use in EU waters, supported by documentary and technical evidence and subject to prior approval by the Commissioner for Revenue. Italy abandoned the lump-sum approach, and the share of use outside EU waters is now proved with AIS data and logs rather than presumed.

The HM Treasury review of the Isle of Man (October 2019) nevertheless found no wrongdoing: of 233 aircraft registrations between 2012 and 2017, only twenty relied on the international-carriage exemption, while the rest paid import VAT and claimed recovery on business use — a practice found lawful, with recommendations limited to strengthening post-registration compliance. Since Brexit the island remains in a single VAT territory with the United Kingdom, and therefore outside the EU: import VAT at 20%, zero customs duty on civil aircraft.

Popular, and it ends badly

Sources

• One Big Beautiful Bill Act, Public Law 119-21 — §70301, permanent 100% bonus depreciation
• IRS — Treasury, IRS issue guidance on the additional first year depreciation deduction — acquisition after 19 January 2025
• IRS Notice 2026-11 — interim guidance, written binding contract and self-constructed property
• 26 U.S. Code §168 — current text, including §168(k)(10) and §168(k)(2)(D)(i)
• Rev. Proc. 2025-32 — §179 limits and 2026 FET rates
• 26 U.S. Code §280F — listed property, predominant business use test, recapture
• NBAA — Detailed Analysis of Section 280F — the two-step test and MACRS classes
• NBAA — 100% Bonus Depreciation: Advanced Technical Implications — contract transition rules
• 26 CFR §1.274-10 — entertainment flight disallowance and allocation methods
• TD 9597 — Deductions for Entertainment Use of Business Aircraft — final regulations, 77 FR 45480
• 26 CFR §1.469-2 — the self-rental rule at §1.469-2(f)(6)
• 26 CFR §1.469-1T — exceptions to rental activity, the seven-day rule
• 26 CFR §1.183-2 — the nine factors of an activity engaged in for profit
• 26 U.S. Code §1245 — depreciation recapture as ordinary income
• 26 U.S. Code §1031 — like-kind exchange limited to real property after TCJA
• Rev. Rul. 2026-8, I.R.B. 2026-16 — SIFL rates for the first half of 2026
• NBAA — Personal Use of Business Aircraft Handbook — weight multiples and the control employee definition
• IRS — LB&I Business Aircraft Campaign — campaign announced 21 February 2024
• 26 U.S. Code §4261 — FET and the aircraft management services exemption
• 26 CFR §49.4261-10 — definition of owner, including the owner trust beneficiary
• TD 9948 — Excise Taxes: Aircraft Management Services — final regulations, 86 FR 4990
• FAA — Current Aviation Excise Tax Structure and Rates — 2026 excise rates
• FMJ Law — State Sales and Use Tax on Aircraft Purchase — the fly-away exemption and its limits
• Directive 2006/112/EC, article 148 — exemptions for vessels and aircraft
• Article 262 II CGI — French conditions for aircraft and seagoing vessels
• BOI-TVA-CHAMP-30-30-30-20 — the 80% threshold and the UDTKT calculation
• Bacino Charter Company, C-116/10 — CJEU judgment of 22 December 2010
• VAT Notice 706/2 — Capital Goods Scheme — the £50,000 threshold and five adjustment intervals
• Thirteenth Directive 86/560/EEC — refunds to persons not established in the EU
• European Commission IP/18/1451 — proceedings against Cyprus, Greece and Malta on yacht leasing
• RSM Malta — New VAT Guidelines on Yacht Leasing — the move to actual effective use and enjoyment, February 2019
• HM Treasury — Review of Isle of Man VAT procedures — the 233 registrations and the review's findings
• ITEPA 2003, section 205 — 20% of the market value of an asset made available
• HMRC Employment Income Manual EIM21633 — worked example using a yacht
• BOI-RSA-BASE-20-20 — benefits in kind valued at valeur réelle
• Article 211 of the Russian Tax Code — income in kind and the determination of the base

Last reviewed: August 2026