Depreciation is one factor taken into consideration by jet charter companies when determining the cost of a private jet. Just like purchasing a brand new car, aircrafts also fall victim to depreciation. In accounting terms, depreciation is the method used when reallocating the cost of a physical asset over its life span once it’s purchased or put to work.
Depreciation at Tax Time
In general, depreciation is used as an income tax deduction. It’s always carefully considered when determining the cost of a private jet. This allows the operator/tax payer to recoup some of the costs of the aircraft once it’s placed into service. Some of the factors that lead an aircraft to depreciate include:
- The manufacture date/age of the aircraft
- Everyday wear and tear from use
- Fluctuating market conditions
When tax season rolls around, the tax payer may be faced with a few challenges surrounding the aircraft’s depreciation. First, an appropriate depreciation rate must be chosen. In order to do this, the operator/taxpayer must estimate the lifespan of the aircraft.
In order to assist with this calculation, there are several methods of depreciation that an owner may use. Some of these methods include:
- Straight-line depreciation
- Doubling declining balance method
- Annuity depreciation
- Sum-of-years-digits method
- Units-of-production depreciation method
On average, an aircraft asset is typically written off over a period of six years. In most cases, the lifespan of an aircraft is much longer than six years.