How do I calculate airplane depreciation? (with photos)

An aircraft engine depreciation is based on an estimated useful life of 10 years.

Depreciation of any business asset depends on the cost of the asset and the useful life rating of that asset. An airplane’s depreciation is unique because an airplane’s components are depreciated at different rates. First, the useful life of each component is considered, and then the depreciation expense is calculated using an allowable method, such as a straight-line, declining-balance, or activity-based method. It is best to consult a tax professional when calculating this type of depreciation.

Older aircraft that have depreciated in value are often purchased by third world airlines.

When calculating airplane depreciation, the mechanical structure or shell of the airplane is based on an estimated useful life of 25 years. Depreciation for the engine and any aircraft parts is based on a 10-year useful life. The undercarriage or landing gear is classified as a seven-year asset. If there is a residual value, or value at the end of business use, this value is subtracted before calculating depreciation.

The modernity of an aircraft’s electronics suite, including its radar system, is used to calculate its value.

The aircraft must be used in a business or trade and be appropriate and essential to the operation of the company for aircraft depreciation to be allowed as a business deduction. In the United States, under IRS regulations, a taxpayer who buys an airplane for commercial or business use can defray a portion of the original cost of the airplane before calculating depreciation. This is known as a Section 179 expense.

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The undercarriage, or landing gear, is classified as a seven-year asset.

After the Section 179 expense is deducted in the year of purchase, a method is chosen to calculate the aircraft’s depreciation. If the linear method is used, the cost of airplane components is divided by the number of years of service life. In declining balance depreciation, a higher percentage of depreciation is used in the early years, with less being deducted in later years of the asset’s life. Activity-based depreciation depends on how much the asset is used in a year, such as the number of flight hours.

There are other factors involved in calculating airplane depreciation. If, for example, an aircraft is used for the business of a corporation and otherwise available for charter, the aircraft may fall into two different classifications of depreciation. Also, if the plane is used partly for personal use and partly for business use, the depreciation must be prorated between the two and only the business part is deductible. Also, if the commercial use portion drops below 50 percent, then the accelerated method used in the Modified Accelerated Cost Recovery System (MACRS) cannot be used and any previous depreciation that used MACRS will have to be recaptured, i.e. , added back as a recipe.

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