RUNWAY GUIDE: TAX PLANNING FOR PRIVATE JET OWNERSHIP
November 17, 2023
Although somewhat less festive than the coming holiday season, tax planning season is officially underway, and for once, that could be a good thing. There is no shortage of opinions regarding putting your money and assets to work for you. When purchasing a private jet, whether whole, fractional, or lease – opinions can be varied.
Is buying a private jet just for those with businesses? Are my travel demands enough to justify this premium service? How do I retain liquidity and still account for such a significant capital deployment?
Those are some of the most common questions you hear when considering a private jet investment. However, if you are reading this, you have likely come to an affirmative conclusion on a private jet’s application in your life.
In this article, Flexjet provides a few simple factors to consider when weighing the nuanced yet navigable aspects of private aircraft ownership. Learn why now is a still a great time to buy a private jet and explore how you can best organize and classify its usage into valuable data that can make tax season as stress-free as your in-flight experience.
UNDERSTANDING PRIVATE JET OWNERSHIP DEPRECIATION DEDUCTIONS
You may think of depreciation as something that happens to your car as it loses value. Most new cars depreciate 20 to 30 percent or even more as soon as you drive them off the lot. But when you are talking about accounting, the definition changes a bit.
Accountants use depreciation to allocate the costs of a fixed asset over the period in which the asset is useable to the business. An accountant or bookkeeper records the entire transaction when the asset is bought – but the asset’s value is gradually reduced by subtracting a portion of that value as a depreciation expense each year.
In 2017, a private jet-impacting tax bill, known as the Tax Cuts and Job Act was introduced. This act was created as amends to the IRS Code of 1986, which, in effect, was a movement to further define all individual and corporate income and shift the United States to a territorial system of taxation for businesses. This implemented tax code saw the depreciation rates you could deduct spike from 50% to 100% during the first year of jet ownership – and ownership itself became an appealing marketplace advantage.
To further break down this complex and layered law – the TCJA was a specifically revised tax code created as part of a sweeping economic stimulus effort. In essence, it simplifies taxes and reduces the tax burden on businesses throughout the United States, an aspect that can specifically benefit new private jet owners.
However, these changes are only temporary, and as put forth by the TCJA, these limited-time tax benefits will expire. This ‘expiration date’ is more of a scheduled phase-out. 2022 was the last year new private jet owners could deduct 100% of their purchase. This time-sensitive approach saw rates drop to 80% in 2023, 60% in 2024, 40% in 2025 and so on until expiration in 2027.
QUALIFYING AND CLASSIFYING PRIVATE JET USE DEDUCTIONS
But what if a fractional interest is used essentially for business and incidentally for personal use? How is this personal use taxed for income tax purposes? Contrary to popular sentiment, fractional jet ownership can be the most efficient use of your capital if you are considering purchasing a private jet.
Once you decide to purchase your private aircraft, be it fractionally or whole, it is essential to maintain vigilance within your record-keeping and reporting practices. Keeping track of your usage rates, trips taken, destinations visited, etc…is how an accountant can justify and verify your unique tax benefits. In the event of an audit, thorough record-keeping is your best chance for resolving any discrepancies. Flexjet can help you officially record your fight activity for easy reference in the future.
Numerous expenses associated with private jet use, including maintenance, fuel, crewing or staffing and even general management and caretaking, may all be considered tax deductible as long as the aircraft is being used for business purposes for more than one half of its recorded flight time. This may help offset the monthly management fees assessed by fractional jet providers.
Private aviation is not a one-size-fits-all solution. There are many considerations to think on before electing your preferred program or provider. What may make sense for one business may be different from another. Still, some private jet companies like Flexjet will take a consultative approach to tailor a solution that considers as many of the varied considerations as possible.
When considering your legal tax services, new purchase entrants should seek a qualified aviation tax advisor who can collaborate with your in-house team to establish a comprehensive tax strategy that achieves desirable outcomes while reducing other forms of punitive tax liabilities. If you are looking for a tax professional who specializes in private jet and large asset ownership, our aviation advisors can make recommendations that fit your unique preferences.
Whether you are looking to purchase a jet or interested in private business travel, there’s a program solution for you and your team. Contact our team at Flexjet.com or call us at (866) 309-2214.