I’ve noticed a few over-simplifications in this thread that all should be aware of. If you depreciate your plane, then sell it, any gain you realize based on the depreciated basis is going to be “recaptured” and taxed at ordinary rates. Forget about capital gains…they won’t happen on these planes.
It may be possible to defer recognition of this income, if you complete a proper 1031 exchange (ie, swap the plane for another plane of equal or greater value). These are tricky…consult with an expert BEFORE signing any sale agreement.
You can ONLY get tax depreciation if the plane is actually used in a trade or business. These rules are complex and there are special rules for determining the minimum level of business use for a plane. Furthermore, if you do depreciate the plane, then every passenger and pilot who ever uses the plane for a personal flight may be required to report an amount of income, roughly equal to a high priced airline ticket for the same trip), using the IRS’ s SIFL rates (Standard Industry Fare Levels). On low priced planes, with a lot of personal use, this SIFL income reporting could over time offset most, if not all, of the tax deductions you may have claimed. And you will still be stuck with a low tax cost basis when you sell the plane, and a huge ordinary income gain to report. (you got it…potential double tax over time)
In the absolute best case, airplane tax deductions permit a write-off of actual declines in value and only a deferral of tax with respect to remaining deductions taken. In the worst case, for a low-priced plane (under several million), the SIFL rules could nail you.
I own two planes and have never bothered to deduct a penny on either. And I’m a tax lawyer! If you plan to take deductions, do not rely on the corner accountant or H&R Block…consult with a good tax advisor who knows all the special rules for airplanes. It’s complicated. My former partner specialized in this area.