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EDIT: Originally published on November 9, 2023. Updated to reflect current tax and planning considerations.
Private air travel continues to play a meaningful role for executives and entrepreneurs seeking efficiency, flexibility, and access to locations not well served by commercial airlines. While owning or leasing a business aircraft can undoubtedly provide numerous advantages, the tax treatment of that investment is complex and often misunderstood.
This article explores the primary tax considerations associated with purchasing a business aircraft, focusing on four key aspects:
• Whether it is more beneficial to lease or buy
• How depreciation impacts the decision-making process
• The differences between fractional versus partnership ownership of an aircraft
• How business versus personal use of the plane affects the deductibility of expenses
Understanding these issues can help business owners make informed decisions that enhance tax outcomes while supporting their air travel objectives.
Once a business determines that private aviation may support its operational needs, the next question becomes how to structure that access. When contemplating the acquisition of a business aircraft, one of the initial considerations is whether to lease, buy, or purchase a fractional share. Each option presents distinct advantages and disadvantages, which extend beyond upfront cost.
Tax implications associated with each approach vary significantly depending on ownership structure, usage patterns, and how expenses are allocated. Evaluating these factors early helps align your business goals and financial circumstances.
The sections below outline the primary tax considerations associated with each ownership model.
Buying an aircraft outright provides full ownership, potential tax benefits, and the ability to customize the aircraft to suit specific business needs. From a tax perspective, ownership allows access to several deductions, subject to applicable limitations.
Common tax considerations include:
• Depreciation: If you decide to purchase an airplane, you can depreciate the cost over its useful life.
• Interest Expense: If you finance the purchase with a loan, the interest payments may be tax-deductible, subject to certain limitations.
• Maintenance and Operating Costs: These expenses, such as fuel, insurance, hangar fees, and pilot salaries, can be deductible.
Leasing an aircraft offers flexibility, lower initial costs, and the possibility of upgrading to a newer model in the future. From a tax standpoint, leasing simplifies certain aspects of expense treatment but limits access to ownership-based deductions.
Key tax characteristics of leasing include:
• Lease Payments: Lease payments for business purposes are generally deductible as ordinary business expenses.
• No Depreciation: Since you do not own the aircraft, you cannot claim depreciation deductions.
• Flexibility: Leasing provides flexibility, allowing you to upgrade to newer models without the hassle of selling or disposing of the aircraft.
Buying a fractional share allows for cost-sharing and access to a fleet of aircraft, providing a balance between ownership and affordability, but the term can describe two distinctively different things:
• Purchasing an interest through a fractional provider, which typically includes access to a managed fleet, standardized operating costs, and scheduling flexibility
• Owning the aircraft through a partnership or joint ownership arrangement, where multiple owners share a single aircraft and manage operations directly
A partnership or joint ownership arrangement is an FAA-sanctioned agreement for more than one owner to share the cost of operating a single aircraft. Unlike fractional ownership, it is an agreement between private owners without a fractional provider, making the owners directly responsible for all aspects of flight operations and aircraft maintenance.
Ownership in an aircraft through a partnership falls between fractional ownership and full ownership. While less flexible than a fractional interest in a fleet-based program, partnerships are generally more cost effective per hour.
Ownership structure alone does not determine deductibility. One of the most important questions that must be addressed is when the cost of private aviation is considered an ordinary and necessary business expense under IRC Section 162.
To meet this standard, the airplane must be used in the taxpayer’s trade or business, and its predominant use must be for business purposes. Owners should maintain separate books and records for the aircraft that include detailed flight logs documenting passengers, the purpose of each flight, and the allocation between business and personal use.
The first consideration is whether using a personal aircraft is reasonable compared to alternative means of transportation. If business is typically conducted locally, or business travel is between major cities that are regularly served by the major airlines, it may be difficult to justify the cost of private air travel as an ordinary and necessary expense of the business.
A better fact pattern occurs when:
• The business requires flights to out-of-the-way locations without ready commercial air service
• The timing and duration of business flights are unpredictable
• Multi-stop itineraries that would be impractical via commercial airlines
• Personal security is a significant concern
Once the ordinary and necessary requirement is met, the next issue is to determine which costs are deductible and which are not.
Since the aircraft being purchased is owned by an entity, costs need to be apportioned to each passenger on each flight and then allocated between business and personal use. Allocation rules are detailed and documentation-driven.
Key allocation principles include:
• Each individual passenger’s purpose for travel as the primary tax treatment driver
• Costs related to business passengers are generally fully deductible
• Personal use may also be further allocated between entertainment and non-entertainment travel
Personal non-entertainment flights can include commuting, traveling for a funeral, traveling to visit a sick relative, traveling to receive medical treatment, or traveling to see an advisor. As long as the owner, shareholder, officer and/or other employee has compensation imputed to him for the flight for an amount equal to the imputed income required, personal non-entertainment flights are fully deductible by the partnership.
Alternatively, the traveler may also reimburse the partnership for the amount of imputed income required which takes away the deduction for the partnership but also doesn’t increase the traveler’s compensation. Careful review of flight logs and passenger purposes can sometimes identify opportunities to classify personal flights as non-entertainment.
Personal entertainment is broadly defined and generally includes all personal travel that is not otherwise categorized as personal non-entertainment, such as flying to vacation locations or places specifically to visit friends or relatives. For these flights, the cost of the flight is only deductible to the extent compensation has been imputed to the individual for the flight. Like personal non-entertainment flights, the traveler may also reimburse the partnership for the amount of imputed income required which takes away the deduction for the partnership but also doesn’t increase the traveler’s compensation.
For purposes of determining the expenses allocated to entertainment air travel of a specified individual, the partnership must use either the occupied seat hours or miles, or the flight-by-flight method. The methodology used must be used for all flights for all aircraft owned by the partnership for the taxable year. Detailed documentation remains a central compliance consideration.
Purchasing an aircraft is a significant investment that comes with considerable tax implications. Tax treatment, ownership structure, and usage patterns all influence the long-term economics of private aviation. Aircraft ownership and usage agreements should be carefully structured and followed correctly, especially when related parties are involved. Proper documentation supports expense allocation, compensation treatment, and audit defensibility.
Elliott Davis works with high-net-worth individuals and closely held businesses to evaluate aircraft ownership strategies, model tax outcomes, and align aviation decisions with broader financial and operational goals. Our team collaborates with tax, advisory, and legal professionals to support planning before acquisition and throughout the ownership lifecycle.
Contact us for help determining the best investment strategy for your business.
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The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.
