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Aircraft Club March 2024: Business aircraft provisions included in President Biden’s FY 2025 budget
March 2024
In brief
What happened?
Earlier this month, President Biden sent his budget proposal for fiscal year 2025 to Congress. As part of the budget, the White House is once again attempting to close what is referred to as the corporate jet ‘loophole.’
Why is it relevant?
Owners of business aircraft should be aware of the recent proposals related to private aviation, which could result in larger income tax and excise tax burdens as well as higher valuations of fringe benefits associated with personal use of company-provided aircraft by executives.
Action to consider:
Affected taxpayers should track the progress of the various proposals related to business aircraft and stay aware of future news releases and notices coming from the government related to private aviation matters.
Observation: It is unlikely that President Biden's proposals to increase taxes will be considered by the currently Republican-controlled House. However, taxpayers should stay aware of the president's fiscal year 2025 budget proposal, as it may provide insight into tax reform priorities for the future if the President is reelected. For additional information, please see PwC Insight President Biden’s FY 2025 budget again calls for corporate and individual tax increases.
In detail
Aircraft depreciation rules
Under the current depreciation rules, the recovery period for aircraft, including all helicopters, not used in the commercial or contract carrying of passengers or freight is five years for MACRS general depreciation system (GDS) and six years for MACRS alternative depreciation system (ADS). For aircraft used in commercial or contract carrying of passengers or freight operations, the recovery period is seven years for GDS and 12 years for ADS.
Thus, corporate aircraft generally are entitled to shorter recovery periods for depreciation purposes. This shorter recovery period for corporate jets is seen as a tax preference. To eliminate this tax preference, the budget proposal calls for the recovery periods of corporate jets to match those for similar commercial transportation aircraft.
This proposal would define "general aviation passenger aircraft" as any aircraft primarily used for transporting passengers but not used in commercial or contract carrying of passengers or freight. This definition excludes any aircraft used primarily in emergency relief operations, non-passenger activities (such as crop dusting, aerial surveying, etc.), and all helicopters. The proposal would be effective for property placed in service after December 31, 2024.
Aviation fuel excise taxes
Currently, the tax rate on kerosene jet fuel used for private jet travel, including corporate jets, is 21.8 cents per gallon. Under the 2025 budget proposal, this excise tax would be increased to $1.06 per gallon, phased in over a five-year period. In the first year, the jet fuel tax would increase from 21.8 cents per gallon to 38.64 cents, with a 16.84 cent per gallon increase in each subsequent year until 2029. The proposal would be effective for property placed in service after December 31, 2024. For further information about current excise tax rates, please see Aircraft Club January 2024: Federal excise tax update.
Increase in valuation of fringe benefit for personal use
In addition to the 2025 budget proposals affecting business aircraft, a group of US Senators recently sent a letter to Treasury and the IRS requesting a change to the valuation for personal use of company-provided aircraft for fringe benefit purposes. The letter indicated support of the IRS's recent action in increasing audits of corporate jet usage. The letter further urged Treasury and the IRS to use their existing regulatory authority to revise or repeal the Standard Industry Fare Level (SIFL) valuation method. For additional information, please see PwC Insight IRS to undertake “dozens” of audits of corporate aircraft usage.
Under current law, the fringe benefit regulations require executives that use a corporate jet for personal travel for themselves or their guests to recognize the value of the flight as income, making the trip a taxable fringe benefit. The Senators said that current SIFL rates -- ranging from 21 cents to 29 cents per mile -- are undervalued when compared to the $13 to $29 per mile that chartered companies charge their guests. If repealed or revised, this change in valuation could result in a significant increase in the fringe benefit income recognized from personal use of corporate aircraft by executives.
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