Sami Goodyear, Author at Latitude 33 Aviation

What Is Aircraft Depreciation?

Aircraft are long-life, high-cost assets that can be a major investment for an individual or business owner. A key part of aircraft ownership is understanding depreciation, which affects the value of the aircraft over time. Calculating your aircraft depreciation can be essential in determining your personal net worth or your business’s finances.

What Is Depreciation?

The accounting method known as depreciation is utilized to allocate a tangible asset’s cost over the course of the asset’s useful life. Depreciation is a way to account for the gradual wear and tear, obsolescence, and loss of value of an asset over time. Depreciation can be calculated in a number of ways, but one of the most common methods is straight-line depreciation. This method involves dividing the cost of an asset by the expected useful life to determine the annual depreciation expense.

For instance, if a company purchases a machine for $10,000 with an expected useful life of five years, you would divide $10,000 by five years. The end result would thus be $2,000 for the annual depreciation expense. This expense is recognized on the company’s income statement each year until the end of the asset’s useful life. Depreciation is important because it helps a company accurately reflect the value of its assets on balance sheets and properly calculate its net income on income statements.

Why Is Depreciation Used?

Depreciation is used for several reasons:

To calculate taxable income: One use for depreciation is for tax purposes. Companies and individuals may be allowed to deduct the cost of an asset over its useful life for tax purposes, which reduces their taxable income and lowers their tax bill.
To comply with accounting rules: Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) require companies to use depreciation to account for the wear and tear and obsolescence of assets over time.
To match expenses with revenues: Depreciation allows a company to allocate the cost of an asset over its useful life. This helps to match the expenses of using the asset with the revenues generated by its use. For example, if a company purchases a machine to manufacture a product that it expects to sell over a five-year period, it would be inaccurate to expense the entire cost of the machine in the year of purchase. Instead, the cost is allocated over the five-year period using depreciation.
To provide a more accurate financial picture: Depreciation helps to provide a more accurate financial picture of a company by reflecting the decrease in value of the assets over time. This is important for investors, creditors, and other stakeholders who want to understand the company’s financial position and performance.

Understanding Aircraft Depreciation

To help you understand aircraft depreciation, we cover what aircraft depreciation is and its purpose in accounting.

What Is Aircraft Depreciation?

Aircraft depreciation is a specific type of depreciation used to allocate the cost of an aircraft over its useful life. Depreciation is an important expense for airlines and owners of private aircraft that own or lease aircraft because it reflects the decrease in value of the aircraft over time due to wear and tear, obsolescence, and changes in market demand.

Several factors can impact the useful life of an aircraft and the rate at which it depreciates, including:

Market demand: Changes in market demand for certain types of aircraft or routes can impact the value of an aircraft and its depreciation expense. For example, an aircraft that is in high demand for long-haul international routes may have a longer useful life and lower depreciation expense than an aircraft that is primarily used for short-haul domestic routes.
Age and condition: As an aircraft gets older and accumulates more hours of use, it is more likely to require maintenance, repairs, and upgrades. This can decrease its value and increase its depreciation expense.
Technology advancements: Advancements in aviation technology can quickly make older aircraft obsolete, reducing their value and increasing their depreciation expense.

Aircraft depreciation is typically calculated using a straight-line depreciation method, which allocates the cost of the aircraft evenly over its useful life. The useful life of an aircraft can vary depending on a number of factors, including the type of aircraft, its condition, and the market demand for it.

What Is the Purpose of Aircraft Depreciation in Accounting?

The purpose of aircraft depreciation in accounting is to allocate the cost of an aircraft over its useful life, reflecting the decrease in value of the aircraft due to wear and tear, obsolescence, and changes in market demand.

Aircraft depreciation is an important accounting concept for several reasons. Depreciation is used in accounting to:

Calculate taxable income.
Comply with accounting rules.
Match expenses with revenues.
Provide a more accurate financial picture.
Allocate the cost of an aircraft over its useful life.

How Does Aircraft Depreciation Work?

Aircraft depreciation works by allocating the cost of an aircraft over its useful life. Aircraft depreciation is typically calculated using a straight-line depreciation method. As noted above, this method divides the cost of the aircraft by its useful life to determine the annual depreciation expense. For example, if an airline purchases an aircraft for $100 million with a useful life of 20 years, the annual depreciation expense would be $5 million — $100 million divided by 20 years.

The annual depreciation expense is recorded on the company’s income statement each year until the end of the aircraft’s useful life. The accumulated depreciation is recorded as a contra-asset account on the company’s balance sheet, which reduces the value of the asset over time. There are also several factors that can impact the rate at which an aircraft depreciates, including its age, condition, and technological advancements. These factors can impact the useful life of the aircraft and its depreciation expense.

What Is Aircraft Bonus Depreciation?

Aircraft bonus depreciation is a tax incentive that may allow you to accelerate the depreciation of your aircraft for tax purposes. Bonus depreciation may allow you to deduct a percentage of the cost of the aircraft in the year it is purchased, rather than spreading the cost over its useful life through regular depreciation.

To qualify for aircraft bonus depreciation, the aircraft must be used for business purposes at least 50% of the time. The bonus depreciation rules apply to both owned and leased aircraft, as long as the lease term is at least five years and the company is the “tax owner” of the aircraft.

Will Aircraft Bonus Depreciation Remain in 2023?

The U.S. tax laws allow for 100% bonus depreciation for qualified property placed in service before January 1, 2023, which includes new and used aircraft. However, tax laws can change frequently, and it is always possible for new legislation to be introduced that could modify or extend the current bonus depreciation rules.

Therefore, it is difficult to predict with certainty whether aircraft bonus depreciation will remain in effect in 2023 or beyond. It is possible that new legislation could be introduced that modifies or extends the current bonus depreciation rules or replaces them with a different tax incentive. It is best to consult with a tax professional for the latest information on bonus depreciation and its potential impact on your aircraft purchase or lease.

Aircraft Depreciation Rates

The bonus depreciation rates for aircraft can vary depending on the specific tax laws and regulations in a given region. Under current U.S. tax law, companies that purchase new or used aircraft can deduct 100% of the cost of the aircraft in the year it is placed in service. This applies to aircraft purchased between September 27, 2017, and January 1, 2023. After January 1, 2023, the bonus depreciation percentage is set to decrease by 20%.

Aircraft bonus depreciation rules can be subject to change and may vary based on specific circumstances, such as the type of aircraft, its intended use, and the applicable tax laws and regulations. The depreciation rates for aircraft can vary depending on several factors, including the type of aircraft, its condition, and the market demand for it. However, in general, aircraft depreciation rates can range from 5% to 20% per year.

Actual depreciation rates can vary depending on several factors. Additionally, bonus depreciation rules can also impact the depreciation rates for aircraft.

Aircraft Depreciation Rules

Aircraft depreciation rules are guidelines set by the tax authorities that determine how much an aircraft’s value can be deducted from a company’s taxable income over time. The Internal Revenue Service (IRS) has established rules for aircraft depreciation, which vary depending on the type of aircraft and its use.

For commercial aircraft used in the business of transporting passengers or cargo, the depreciation period is generally 7 years, but can be as long as 12 years if certain conditions are met. For non-commercial aircraft, such as those used for personal or pleasure use, the depreciation period is generally 5 years.

The depreciation rate is calculated using a formula that takes into account the aircraft’s cost, estimated salvage value, and useful life. The depreciation amount is then deducted from the company’s taxable income each year until the end of the depreciation period.

What Factors Affect Aircraft Depreciation Rates?

Aircraft depreciation rates can be affected by several factors, including:

Type of aircraft: Different types of aircraft can have different depreciation rates depending on factors such as their useful life, market demand, and maintenance costs.
Intended use of the aircraft: Aircraft that are used frequently or for commercial purposes may have higher depreciation rates than aircraft that are used only occasionally or for personal use.
Maintenance and repair costs: The cost of maintaining and repairing an aircraft can impact its depreciation rate, as higher maintenance costs may lower the value of the aircraft over time.
Market demand for the aircraft: If there is high demand for a particular type of aircraft, its depreciation rate may be lower than if there is low demand.
Age and condition of the aircraft: Generally, older aircraft and aircraft that are in poor condition will have higher depreciation rates than newer aircraft or aircraft in good condition.
Government regulations and incentives: Government regulations and incentives, such as bonus depreciation rules or tax credits, can impact aircraft depreciation rates.

Consider all of these factors when determining the depreciation rate for a particular aircraft.

How to Calculate Aircraft Depreciation

Aircraft depreciation can be calculated using various methods, including the straight-line method and the accelerated depreciation method. The following are some general steps to calculate aircraft depreciation using the straight-line method:

Determine the aircraft’s cost: First, determine your aircraft’s cost. This includes the purchase price of the aircraft, as well as any additional costs associated with acquiring or modifying the aircraft, such as financing fees, delivery charges, or installation costs.
Estimate the aircraft’s useful life: Next, determine the aircraft’s estimated useful life. This is the estimated period of time over which the aircraft will be used and will provide value to the business or individual. The useful life can be determined based on factors like the type of aircraft, the expected hours of use, and the expected maintenance and repair costs.
Determine the salvage value: The aircraft’s salvage value is the estimated value of the aircraft at the end of its useful life. The salvage value can be determined based on several factors, such as the age and condition of the aircraft, as well as the market demand for that particular type of aircraft.
Calculate the depreciation expense: Finally, calculate the depreciation expense of the aircraft. The annual depreciation expense can be calculated by subtracting the salvage value from the aircraft’s cost and then dividing the result by the useful life of the aircraft. This provides the amount of depreciation expense to be recognized each year.

For example, if an aircraft costs $10 million, has a useful life of 20 years, and is expected to have a salvage value of $2 million at the end of its useful life, the annual depreciation expense using the straight-line method would be $400,000 per year — $10 million – $2 million / 20 years = $400,000.

Different methods of depreciation can result in different amounts of depreciation expense, and businesses or individual aircraft owners should consult with their accountants or tax professionals to determine the most appropriate method of depreciation for their particular situation.

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While the purchase or sale of an aircraft can seem complex, our experts will make the sales and acquisition experience efficient and enjoyable. We know what details matter to you, and take into account the operator’s perspective in all transactions. We achieve better financial results because of our unsurpassed experience, in-depth oversight, superior valuations, and knowledge of the marketplace.

Latitude 33 Aviation is the source for your private jet needs. Learn more about how you can purchase a private aircraft from Latitude 33 Aviation to receive the tax benefits of bonus depreciation.

What’s the Most Affordable Way to Charter a Jet?

Chartering a private flight is a convenient, comfortable, and flexible way to fly. It can help you save precious time, letting you spend more time at your destination after reaching it in comfort.

Various strategies can help you find incredible rates on private flights, which is especially advantageous if you are a frequent flyer. Continue reading to learn how you can find the best private jet charter rates.

7 Ways to Find an Affordable Private Jet Charter

Affordable air charters make private flying accessible to more individuals. The cheapest way to fly private depends on your preferences and flexibility. You can find affordable charter flights if you are willing to travel in a group, seek different flight options and keep your schedule open.

1. Travel in a Group

Traveling in a group lets you split costs with others. Booking a charter flight on your own typically requires paying for every seat on the flight yourself, but scheduling a flight with other individuals lets you share the cost and pay only for your seat. Whether you take friends, family, or co-workers, flying in a group could be one way to affordably access a private jet charter.

2. Choose a Smaller Aircraft

Smaller aircraft typically offer lower rates than other aircraft. Smaller planes use less fuel and have smaller crews, reducing flying costs. A smaller aircraft may lack a few of the luxuries of larger jets, but they offer comfortable flights at exceptional rates.

3. Join a Membership Service

Joining a membership can help you save money if you fly frequently. However, traditional charters often offer better rates than the hourly flight rates memberships offer. Avoid signing up for a membership and tethering yourself to one provider if you can find better rates with a traditional jet charter company.

4. Seek Empty Leg Flights

An excellent way to save money on a private jet charter is to seek empty leg flights. An empty leg flight occurs when passengers charter a one-way flight to a specific location and the aircraft lacks return passengers. If no passengers book a flight back to the home base after the aircraft lands, it’s considered an empty leg flight.

An empty leg flight can also happen when a charter jet flies empty to pick up passengers away from the aircraft’s home base or when it flies to a different location to be serviced.

Aviation brokers may offer discounted flights to fill empty aircraft seats. It’s sometimes more affordable for an aviation broker to fly back to their home base than to wait for passengers to book flights in a specific location, but offering discounted flights lets them gain passengers without waiting.

An empty leg flight is sometimes referred to as a repositioning leg, ferry flight, dead-head, empty flight, or a one-way flight. They are typically available on short notice, so you may need to check for them often to book a charter. Booking an empty leg flight is an exceptional option if you don’t have a specific destination in mind, but it’s essential to remember that you will still need to book a separate flight home since an empty leg flight is a one-way charter.

5. Check Different Airports

Checking different airports can help you save money on chartered flights. Private aircraft often fly to alternate airports that are inaccessible to commercial jets. Flying out of alternate airports can save you time and money, and it lets you avoid the long lines of commercial airports. Certain departure locations may offer lower rates than other locations.

6. Book in Advance

Charter companies often strive to secure as many flights in advance as possible, which can save passengers money. Many companies offer better rates for advance bookings, so looking for flights ahead of your planned travel time is an excellent strategy to obtain a flight for the best price. You can save money by booking in advance as long as you seek flights outside of peak times and holidays.

7. Keep Your Schedule Open

Flexibility is another excellent way to save money on private jet charters. Many people pay high prices for the convenience of flying at specific times, but having an open schedule increases the likelihood of finding better rates on charter flights. You are more likely to find a great deal if you are willing to fly at any time and on any day than if you need to leave at a specific time.

It’s essential to avoid booking flights during holidays and peak times if you want to save money. Rates usually increase during these times due to high demand. You can also take advantage of fixed routing programs. Some companies offer flat rates for passengers who frequently fly the same route.

Is a Private Flight Worth the Money?

The cost to charter a private flight varies, ultimately depending on the aircraft’s size and type, how long you need to charter it for, your departure and arrival destinations, and what kind of amenities the jet offers.

A private flight is costlier than flying commercial, but many find it well worth the investment. Private flights offer incredible benefits such as convenience, flexibility, privacy, and comfort. You can typically enjoy a non-stop flight, avoid long commercial airport lines, and save valuable time, which is especially beneficial if you are a frequent flyer because it can save you hours. Private flights offer a scheduled alternative to the often unpredictable nature of commercial flights. The in-flight experience is also more enjoyable, with ample space, a quiet environment, and comfortable seating.

Private flights are an ideal option for business flights because they help individuals increase efficiency. You can work without distractions and manage meetings in a quiet space. Private charter flights are also equally safe to traditional flights, and air charter operations require extensive aircraft maintenance procedures, operational safety rules, and FAA pilot certification.

Request a Quote for Luxury Charter Flights

Flying private is an exceptional way to enjoy comfort, convenience, and peace in the air. On a private charter flight, you can complete work efficiently in a quiet space, rest in a comfortable seat with plenty of leg room, and reach your destination fast. When you fly privately, you can avoid airport lines and hassles and save precious time.

Your time is valuable, so you should be able to spend it on important matters. You can find competitive rates on private charter flights by booking in advance, keeping your schedule open, remaining flexible, flying in a group, and checking for empty leg flights.

Fly private with Latitude 33 Aviation. Latitude 33 offers luxurious private charter flights at incredible rates, helping you get a more comfortable, stress-free experience as you reach your destination. Contact Latitude 33 Aviation to request a quote for luxury charter flights.

Part 91 and 135 Operations: What Makes Them Different?

As you consider the specific ways you’ll be utilizing your private jet, you must ensure you’re following all necessary regulations. Will you be using your jet for private transportation? Will you be using your aircraft to earn revenue with charter flights? These are just two examples of how you can use your private aircraft, and the regulations you must follow in both instances differ.

The Federal Aviation Administration (FAA) has specific regulations in place you must follow depending on how you are using your private jet. These requirements are known as Federal Aviation Regulations (FARs). Understand the difference between Part 91 and Part 135 operations to ensure you fly lawfully and safely.

What Are Part 91 Operations?

In Part 91 operations, you can only provide flights in non-commercial situations. The FAR regulations governing Part 91 operations are all non-commercial in nature, so you are unable to receive compensation or reimbursement for flights. The moment you receive payment for the use of your aircraft in most instances, it becomes a commercial transaction.

When operating under Part 91 certifications, you will be subject to a set of specific conditions under which the aircraft must operate. These conditions include safe weather requirements, necessary landing distances, and proper pilot training. You will also need limited insurance to fly non-commercially under Part 91 guidelines to protect you from being liable in certain circumstances.

Since Part 91 operations govern non-commercial flight situations, you have more freedom in how you operate your private aircraft. This is to give private operators more flexibility in how they use their aircraft while still providing a framework for safe, consistent operations.

There are some situations under Part 91 operations when payment can be made to the operator for use of the private aircraft. This may happen only when the operator is paying an equal portion of the costs of the flight as the people who are being transported. For example, if there are three passengers receiving transportation services on your aircraft, you will have to pay one-fourth of the total cost of the flight.

What Are Part 135 Operations?

Part 135 operations are a set of FAR guidelines relevant to non-scheduled, commercial aircraft operations. These can include air taxi flights and private air charters, among other types of transactional private jet situations. The FAA outlines a much more strict and detailed legal and operational framework when flying under Part 135 operations, so it’s important to understand it to ensure you’re following all requirements and guidelines.

Due to the back-end support and structure of Part 135 operations, the process of achieving Part 135 certifications is quite involved. After achieving certification, you must completely follow all operating guidelines to stay safe and legal as you engage in using your private aircraft for commercial purposes. In addition to having a full management crew to oversee organizations, you will also need a flight-following system in place. This addition will ensure operational control of your aircraft during flight while also tracking the flight status.

Since Part 135 operations are commercial, you should also be aware of the tax implications of providing commercial flights with your aircraft. The Internal Revenue Service (IRS) has different definitions for what constitutes a commercial flight than the FAA. Anytime you surrender your private jet charter flight use, tax agencies may view the flight as commercial — even if you, the owner, are a passenger on the flight.

The Differences Between FAR Part 91 and 135

FAR Part 91 and 135 have several key differences in addition to Part 91 being non-commercial and Part 135 being commercial.

Personnel Requirements

There are some important personnel-related differences to understand, including:

Management personnel: In Part 91 operations, the commanding pilot is the final authority on all procedures. In Part 135 operations, you need a full management crew including a chief pilot, maintenance manager, and operation manager. This crew provides a clear chain of command before, during, and after flights.
Rest requirements: Part 91 operations have looser rest requirements than Part 135 operations. In Part 91 operations, a pilot can fly an aircraft for days without breaks. In Part 135 operations, pilots follow strict rest requirements between flight sessions as an added safety measure.
Pilot qualifications: Part 135 operations regulations impose higher standards for pilot qualifications than Part 91 operations. Part 135 operations may also subject the flight crew to alcohol and drug testing.

Flight Conditions

It’s theoretically possible for pilots to take off in conditions of zero visibility when operating under Part 91. Part 135 operations are unable to take off under these conditions and require airports with on-site weather reporting.

When operating an aircraft under Part 91, pilots can use a runway of any length as long as it fits under the aircraft’s performance limitations. This differs from operating an aircraft under Part 135, which requires a set amount of runway length to ensure safe takeoff and landing.

Passenger Requirements

Passengers also have their share of requirements they must follow when flying under Part 91 or Part 135 operations regulations. Passengers can usually avoid identification for flights within the United States when flying non-commercial under Part 91 operations. This differs from flights under Part 135 operations, which require passengers 18 years and older to present government-issued identification as they would when flying on a commercial airline.

Why Is It Important to Know the Difference?

Knowing the difference between Part 91 operations and Part 135 operations enables you to properly plan for how you want to use your private jet and what you can expect under certain circumstances. Here are some primary benefits of understanding the differences:

Safety: Because of the tighter restrictions on Part 135 operations, you can argue that they have more safety nets in place. This can give you more peace of mind.
Regulations: You want to follow all regulations when using your private aircraft. Knowing the differences between Part 91 and Part 135 operations can help you achieve this and avoid penalties.
Intended use: Part of staying safe and following regulations is aligning your intended use of your private aircraft with the correct FAR operations. By knowing how you want to use your private jet, you can align your operations with either Part 91 or Part 135 for the safest and best outcomes.

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Understanding Aircraft Sales and Use Tax

States typically impose sales and use tax for the sale, purchase, and use of aircraft. However, the amount of imposed sales and use taxes vary from state to state. Each state enforces specific tax laws that aircraft owners must adhere to. In some cases, states will allow tax exemptions on sales and use taxes if aircraft owners meet specific requirements.

It s important to understand your state’s tax laws and how sales and use taxes work. That understanding can help you avoid paying high taxes and even help you reduce the amount of taxes you owe on an aircraft transaction. Your hangar location, where you purchase your aircraft, how often you use it, and what you intend to use it for are all factors that affect sales and use taxes.

Sales Tax vs. Use Tax

When aircraft sales and purchases occur, states impose taxes on the transactions and use of aircraft within the state. Sales tax applies to the sale and purchase of an aircraft. When an owner sells their aircraft, they must pay a sales tax on the money they earn from the transaction. Depending on state law, someone who obtains an aircraft may have to pay a use tax for operating or simply storing the aircraft within the state.

What Is Aircraft Sales Tax?

The government imposes a transaction-based sales tax on the sale of services and goods. Sales tax is a type of consumption tax that the seller is responsible for collecting and delivering to the government. This tax also applies to the lease or purchase of property such as aircraft. Sales tax applies in the state where the lease or sale transaction occurs. A lease transaction can take place in:

The aircraft’s hangar location.
The aircraft’s delivery location.
Any other state with jurisdiction to impose a tax on the aircraft.

What Is Aircraft Use Tax?

As of 2021, 45 states and the District of Columbia have a use tax on property consumption, use, or storage. This tax can apply to any property that was purchased outside the state.

Individual states’ use tax provision structures will determine if a use tax applies. Some states may impose a use tax the first time an aircraft owner uses their aircraft in the state. Some impose it on an aircraft that is present in the state for a certain number of days, while others may only impose a use tax if the owner uses the aircraft within a specific period following the purchase. Some states consider an aircraft owner’s permanent home country a factor, while others consider it irrelevant.

In most situations, aircraft owners must pay use tax based on their hangar location because it serves as the aircraft’s primary base. Since aircraft are mobile and can be used in any state, they can also be subject to use tax in any state with jurisdiction. However, it is uncommon for a state to impose a use tax on a nonresident’s aircraft that only occasionally operates in the state.

Current and prospective aircraft owners should primarily focus on the following tax provision factors:

The aircraft’s primary base or hangar location
Whether or not the aircraft owner is a business entity
The aircraft’s primary place of business
The owner’s state of residence
Any state where the owner will frequently operate the aircraft

Personal Property Tax

Sales and use taxes are not the only fees aircraft owners and buyers must consider. It’s also important to be aware of personal property taxes. Some states impose a personal property tax and a registration fee on aircraft transactions. Ensure you address all potential fees and taxes before selling or purchasing an aircraft.

Aircraft Depreciation

It’s also important to consider aircraft depreciation when buying or selling aircraft. Aircraft depreciate over time. When you sell a depreciated aircraft, you will need to pay income tax on the gain you receive. This depreciation recapture is based on the amount the aircraft’s sale price exceeds its adjusted basis. A state will tax this as ordinary income instead of capital gains.

Exemptions

While many states impose significant sales, use, and personal property taxes on aircraft sales, some exemptions exist. Aircraft tax exemptions eliminate the tax owed on certain sales if they meet specific requirements. These exemptions include the fly-away exemption, the isolated or occasional sales exemption, the sale-for-resale exemption, the credit exemption, and the interstate commerce exemption.

Fly-Away Exemption

Many states allow for the fly-away exemption. This exemption applies if the aircraft’s sale occurs while the aircraft is in one state and the new owner moves the aircraft to a different state within a specific period. In this situation, sales and use tax would not apply to the sale. However, the aircraft owner may still have to file paperwork with the taxing authority.

Isolated or Occasional Sales Exemption

Sellers who are not in the business of selling may make transactions called occasional or isolated sales. In some states, an aircraft may be exempt from sales tax if the property owner only makes an isolated sale. However, infrequently-sold high-price items do not qualify for this exemption in many states.

Credit Exemption

Some states allow a trade-in credit that equals the trade-in property’s value to offset the sales tax applied to the purchase price. The transaction must meet two conditions to qualify for the trade-in credit:

The person purchasing the new property must be the one selling the trade-in property.
The person acquiring the trade-in property must obtain it with the intention of holding it for resale for ordinary business purposes.

Some states may limit this exemption to the exchange of similar property. With this limitation, a trade-in credit for an aircraft sale would only apply when exchanging one aircraft for another.

Sale-for-Resale Exemption

The sale-for-resale exemption is the most significant in aircraft sales, often occurring when a licensed dealer purchases an aircraft for their inventory. Since the dealer purchases the aircraft with the intent to sell it in a future taxable transaction, the state will not collect a sales or use tax on the purchase.

Sale-for-Resale Including Leasing Exemption

The sale-for-resale exemption can also apply to leasing situations and is based on two notions — that sales taxes typically apply to retail sales rather than wholesale sales and that leases typically qualify as taxable sales. In some states, this exemption allows a company or person to purchase an aircraft tax-free by establishing a separate business entity as a leasing-and-holding company.

The sale-for-resale leasing exemption only applies under certain conditions:

The buyer must purchase the aircraft solely to hold and lease it to other parties: In this situation, the buyer is responsible for paying sales tax on the lease payments, resulting in a tax deferral. The total sales tax on the aircraft would depend on how many years the buyer owns it, allowing them to make sales tax payments over several years and avoid paying an entire up-front sum.
The leasing-and-holding company must lease an aircraft without a crew, aircraft management, or pilot services: The person or company that the owner leases the aircraft to is responsible for hiring employees, working with a separate management company or setting up their own pilot company.
The aircraft owner must not operate the aircraft, and the aircraft’s sole purpose must be for leasing: Ignoring this rule can result in an imposed sales tax on the original purchase in addition to penalties.

The sale-for-resale leasing exemption differs between states in regards to the lessee. Some states require that an aircraft owner leases the aircraft to only one affiliate and others require an exclusive lease to a single entity.

While some states implement the sale-for-resale exemption, others have rules in place that cancel it out:

Operating vs. capital leases: Some states attempt to establish a distinction between operating leases and capital leases. In these cases, a state will view a lease with a purchase option of a nominal sum as equal to a sale and tax the original purchase price. Some states will even treat leases as a sale if the leases exceed a percentage of the aircraft’s value.
Taxing on commencement: Some states charge a lessor or lessee tax on the total sum of an aircraft’s lease payments due as of the commencement date, resulting in a higher sales tax than the tax on a standard sale.
No lease taxes: Some states will not tax any type of lease, preventing aircraft owners from using the sale-for-resale exemption. This exemption requires a minimum of two taxable transactions — the purchase and the release. If the lease is not taxable, the state will not consider the first transaction to be a purchase for resale and will require tax on the aircraft’s original purchase price.

Interstate Commerce Exemption

While the interstate commerce exemption varies from state to state, it shares some similarities with the sale-for-resale exemption. The interstate commerce exemption is based on the recognition that aircraft providing transportation services to the public should be tax-exempt. In these cases, the aircraft’s buyer is considered a transportation services vendor, making them exempt from taxation or only eligible under a different tax arrangement.

The Federal Aviation Administration grants the Part 135 certificate to companies if they meet a specific section of Federal Aviation Regulations (FARs). Some states offer the interstate commerce exemption to Part 135 operators, while others limit it to scheduled carriers. The Part 135 certificate allows companies to operate as non-scheduled air charter carriers, and some states deny the interstate commerce exemption to on-demand jet carriers.

States also base eligibility for the interstate commerce exemption on different factors. Some states focus on an aircraft’s end user, while others focus on the use of the aircraft. Other states allow the exemption only if the aircraft’s purchaser or lessee is a certified air carrier.

Important Considerations for Leasing

If you plan to purchase an aircraft with the intent to lease it, it’s important to consider and do the following:

Keep records: Keeping records of everything will ensure you have everything you need if the state performs a tax audit. Many states require taxpayers to maintain accurate records and books, and many tax authorities require thorough records to support any requests for exemptions. An aircraft owner must present bank statements and invoices to back up each entry. It’s also essential to keep records of any third-party transactions.
Ensure lease payments are market rate: If a lease rate falls under the market rate, a tax authority may impose a higher one. Ensuring you set your lease payments at the market rate will prevent tax authorities from imposing their own lease rate. Some states require aircraft owners to charge a lease rate equal to the sales or use tax they would have paid if the exemption was not applied.
Pay attention to corporate formalities: Corporate formalities are the rules and guidelines that allow a corporation to meet its operational requirements and retain the benefits of corporate protections. Following these formalities ensures that the state’s tax authority considers the entity a legitimate business.
Follow through with the correct leasing and ownership structure: Following through with the correct leasing and ownership structure ensures that the state’s tax authority will recognize the purchase and lease as a legitimate transaction. Execute your written lease when you purchase the aircraft to ensure you can claim the exemption within the state’s time limit.

Looking to Sell or Purchase an Aircraft?

Selling or purchasing aircraft requires extensive knowledge about an aircraft’s value and potential taxes. The taxes you will owe on an aircraft transaction will depend on where you complete the transaction, your hangar location, and where you use the aircraft. Some states allow for tax exemptions if you meet certain requirements, so it’s important to understand state tax laws.

Adhering to a state’s tax exemption requirements can help reduce the amount of taxes you owe on an aircraft transaction. As an aircraft sales and acquisitions company, Latitude 33 Aviation conducts market research to help buyers purchase aircraft that meet their specific criteria. Our experienced acquisition experts can help you protect your multi-million dollar sale or purchase, so your investment is safe.

With the help of Latitude 33 Aviation, you can make informed decisions, and avoid costly pitfalls when buying a private jet. Contact Latitude 33 Aviation to learn more about how we can help you make informed financial decisions as you sell or purchase a quality aircraft.

*This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

A Guide to Aircraft Interior Refurbishment

Aircraft interior refurbishment involves updating, replacing, and enhancing a cabin’s interior elements. Owners often refurbish their aircraft to increase comfort, style, functionality, and resale value.

A high-quality refurbishment makes a cabin more aesthetically pleasing and desirable to potential buyers looking for an exceptional aircraft. Continue reading to learn more about how to effectively upgrade a jet’s interior with superior design, functionality, comfort, and style.

What Does It Mean to Refurbish an Aircraft?

Refurbishing an aircraft is the process of extensively or subtly updating its interior elements. Refurbishment may include a few updates or a full remodel of the jet’s interior facets. Aircraft owners may choose to refurbish all or a selection of the following features:

Windows
Window covers
Seat upholstery
Entertainment systems
Armrests
Lighting
Countertops
Flooring and carpeting
Cabinets
Composite panels
Sound system
Internet connection capabilities
Walls

Why Is Refurbishment a Good Investment?

Aircraft refurbishment is an exceptional investment for private jet owners and resellers. Refurbishing an aircraft increases its resale value and strengthens its appeal. Quality updates can impress potential buyers and significantly influence their purchasing decisions.

6 Points to Consider Before Refurbishing an Aircraft

Some aircraft owners start the refurbishment process without specific preferences, but keeping certain considerations in mind can make it easier to choose and plan aircraft interior upgrades. Before refurbishing a jet, owners should consider the following elements:

1. Style

Refurbishing an aircraft is the perfect opportunity for an owner to update their jet’s style for a more appealing aesthetic. Older jets may have outdated styles with undesirable textures, colors, and furnishing, and owners can upgrade them to match more modern styles and create the look they desire.

Before starting the refurbishment process, aircraft owners should plan the design they want to create. Designing a jet’s interior with the right colors and textures can help to fashion a pleasing interior style.

2. Comfort

Comfort is another essential factor. Updating interior private jet features can increase passenger comfort and safety. Updating upholstery eliminates wear and tear, and repairing window scratches can prevent hazardous broken windows. To enhance an aircraft’s comfort, owners should consider seating features, convenient fixtures, adjustable mood lighting, cabin pressure, and humidification.

As an example, rotating seats enhance passenger experiences by allowing them easier window viewing, and reclining chairs or beds make sleeping easier and more comfortable. Convenient fixture additions such as cup holders and desks also increase convenience.

3. Functionality

An aircraft refurbishment goes beyond comfort and style to also address functionality. It’s important to consider the jet’s cabin management system and connectivity. Updating the interface allows the cabin crew to better control and monitor aircraft functions within the cabin such as passenger calls and signs and cabin illumination.

4. Capacity

Aircraft owners can increase capacity with the right updates. Refurbishing an aircraft provides the opportunity to optimize cabin space. Adjusting a jet’s floor plan can create more space for additional seating as long as the adjustments align with Federal Aviation Administration (FAA) regulations. It can also create more space for optimal luggage storage.

Aircraft owners can schedule a professional evaluation before starting the refurbishment process to determine if it’s possible to increase their jet’s capacity and ensure their plans remain within FAA regulations.

5. Resale Value

Resale value is an important consideration when refurbishing an aircraft, as certain changes may add more value than others. Choosing the right colors, textures, furnishings, and features can increase a jet’s appeal and value. Aircraft owners should consider elements that will stand the test of time. Trending colors and styles may not be as desirable in a few years, so it’s best to choose elegant, neutral colors that will remain appealing.

6. Technological Features

Technological updates can significantly enhance an aircraft’s interior. Features including automated window dimming, energy-efficient lighting, a strong internet connection, and televisions improve the passenger experience and increase a jet’s appeal.

How to Refurbish an Aircraft Interior

Refurbishing a private jet’s interior requires planning and attention to detail. The aircraft refurbishment process consists of the following steps:

1. Evaluate the Aircraft

Aircraft evaluation is the first step of the refurbishment process. During an evaluation, a professional aircraft interior team inspects the jet’s interior for concerning factors such as damage and scratches. They may also take photos for future reference. They’ll consider the aircraft owner’s functionality and style goals while evaluating the jet’s condition and initiating quality control measures.

The team will also review the following documents in its process:

Flight records
Electric plans
Maintenance records
Avionics lists

2. Create a Plan

Following the evaluation, owners can then consult with a design team to start the aircraft interior design and planning process. During this step, aircraft owners can consider the colors, carpeting, seating, lighting, and layout they would like to use. This is also when owners and designers should begin contacting vendors for the supplies and materials they’ll need for the refurbishment.

3. Remove the Existing Interior

Once a plan is in place, the refurbishing team removes the aircraft’s existing interior. They take out interior elements such as lower walls, headliners, seats, window panels, and carpets. Then, the refurbishing team disassembles these components and strips them of fabrics and materials.

4. Refurbish and Replace Interior Components

The refurbishing team replaces components and re-installs updated elements after they make changes. During this step, they’ll also detail and clean the jet’s interior.

5. Track and Manage Costs

Tracking and managing aircraft interior refurbishment costs is crucial throughout the entire process. It’s important to obtain quotes from several different respective vendors and receive details about what they can offer, as doing so allows you to choose the best options for the best prices. Remaining involved in tracking and managing costs helps to prevent potential unexpected occurrences and minimize changes.

4 High-Value Aircraft Interior Upgrades

Adding high-value aircraft interior upgrades can result in a high return on investment. If you’re planning a jet refurbishment, consider the following beneficial upgrades:

1. High-Bandwidth Connectivity

Cabin electronics have become incredibly important to passengers. High-bandwidth Wi-Fi allows passengers to stay connected to email, social media, and online work programs during flight.

With a quality internet connection, you and other passengers can continue working on important tasks or stay connected to your favorite websites with ease. This increases a cabin’s comfort and convenience during flights. You can also install tablets in the cabin’s seats to optimize convenience.

2. Passenger-Friendly Cabin Management System

Functional improvements to the cabin management system can also enhance the passenger experience and optimize an aircraft upgrade. Updating the cabin’s audio panel system improves audio quality for music and video connections, making it much easier to enjoy entertainment during flights.

3. Seating and Upholstery

Seating and upholstery elements are what provide the most comfort and style in an aircraft cabin. It’s essential to replace all of a cabin’s chairs even if only one appears outdated or damaged to create a more coherent design.

4. Carpeting

Adding new carpeting to an aircraft is a simple yet crucial upgrade. New carpeting gives a cabin a fresh, clean, and luxurious look. Carpet can wear easily due to foot traffic, so carpet replacement is one of the most important upgrades an aircraft owner can make.

Aircraft Interior Refurbishment Do’s and Don’ts

If you plan to refurbish a jet for the first time, there are some important considerations to keep in mind. Before starting the refurbishing process, consider the following do’s and don’ts:

What You Should Do

For a high-quality aircraft interior upgrade, remember to take the following actions:

1. Plan Ahead

Planning ahead is essential when refurbishing a private jet. The more advanced planning you do, the more you can minimize aircraft downtime. Planning ahead prevents challenges, scheduling delays, and changes once the refurbishing process begins. If you and the refurbishing team are in agreement about your goals, selected designs, chosen vendors, and scheduled timelines, the process can proceed smoothly.

2. Consider Proportions

When you step into an aircraft, you visually take in the entire interior at once. Therefore, you want your upholstery, carpet, wall colors, and fixtures should work together to complement each other. Making all of the cabin’s elements one color can cause that color to overpower the cabin, but choosing too many colors can make the space appear busy, so you should aim for balance.

3. Test Lighting and Colors

Lighting may seem simple, but different lighting options can dramatically affect your aircraft cabin’s overall aesthetic. Different bulbs and fixtures offer warmer or cooler tones, which can give the cabin’s colors and materials various appearances. Choosing quality lighting and colors that complement it can set the tone for your aircraft’s mood and atmosphere. LED lights are an excellent option that can enhance lighting and conserve energy.

When you choose a jet’s interior colors, examine your color samples in natural sunlight, and pay close attention to how they look throughout the day. You may love one color in the early morning light but dislike its appearance in the dimmed evening light. The best color option for your cabin is one that you find appealing in all lighting conditions.

What You Shouldn’t Do

For a smooth process and desirable results, you should take action to avoid the following mistakes:

1. Neglect Small Details

Pay close attention to details during the design and refurbishing process. Small changes may seem unimportant compared to larger upgrades you plan to make, but they can make a significant difference. Specifically, focus on perfecting your seating and flooring and request any unique features that can complement your overall style.

2. Delay Ordering Materials

Ordering materials in advance can help ensure you receive the colors and styles you prefer. Ideally, you should order products three to six months ahead of time to avoid needing to choose different styles at the last minute due to items selling out or requiring long production periods.

Other Aircraft Interior Design Tips and Best Practices

Choosing the right elements, colors, fabrics, flooring, and details can help you fashion the elegant interior you desire. If you’re unsure where to start, consider the following design tips and best practices:

1. Use Neutral Color Palettes

Neutral color palettes are ideal for interior refurbishings. While some trends may ignite temporary interest in bold colors, toned-down options remain stylistically timeless. Neutral colors can complement other design elements and highlight bolder details. They beautifully accentuate textures and furnishings and make it easier to create a well-designed space.

Using whites, grays, browns, and black in an aircraft interior opens the space up for various styles and design options, allowing future owners to style it according to their personal tastes.

2. Prioritize Durability

Leather is the standard seating option for aircraft interiors because it’s stylish and durable. You can add leather to other interior elements to enhance its appearance and increase longevity. Consider doing so for features such as armrests and the divan base in addition to the cabin’s chairs.

3. Choose the Right Fabrics

Aviation regulations allow certain fabrics in aircraft, which are mainly natural fibers such as nylon, wool, and vinyl. Fabric enhances comfort, adds to the cabin’s aesthetic, and absorbs sound. Choosing the right fabric can complement your aircraft interior’s style and make your materials last longer.

4. Select Quality Flooring

Quality flooring contributes to your jet’s aesthetic and the interior’s durability. Wool loop carpet is made of tightly-packed wool loops, and it offers a wide variety of design options. You can choose from various yarn colors and loop heights to create an exquisite look. Wool carpeting is the most long-lasting option because it naturally repels dirt and is easy to clean. Its durability can help you save time and money on future refurbishments.

It’s also essential to select quality flooring for your aircraft’s galley, vestibule, and lavatory because these areas are prone to spills, dirt, and weather intrusion. Cabins maintain a refreshed appearance with durable vinyl flooring, which offers water resistance and can come in various types for maximum customization.

5. Add Comfortable Accessories

Accessories can add a luxurious touch to your aircraft interior for optimal comfort. Consider adding and providing items such as custom pillows, stylish throws, and soft slippers.

Buy and Sell Refurbished Jets With Latitude 33

Refurbished aircraft are exceptional investments due to their updated style, comfort, functionality, and value. Latitude 33 Aviation offers professional jet brokerage and sales services to help you purchase or sell your private jet. Our jet acquisition services are tailored to meet client needs, and our team can help you determine the ideal aircraft for you based on your requirements and needs.

Latitude 33 also offers brokerage services to help clients sell aircraft. If you wish to sell your refurbished aircraft, our experienced professionals can guide you through the sales process with negotiation mastery, marketing acumen, and extensive market expertise.

With a factory acceptance program, complete services, and an experienced team, we understand the marketplace and the intricacies of each aircraft ownership stage. Contact Latitude 33 to learn more about how we can help you purchase or sell a private jet.

Tax Credit for Jet Purchases

Private citizens and businesspeople have shown an increased interest in the private jet industry over the past few years due to certain governmental actions, namely the Tax Cuts and Jobs Act (TCJA) implemented in 2017. This is a federal income tax that can provide several benefits to new private jet owners, but these benefits are time sensitive and set to expire.

If you’re thinking of buying a private jet, now is the time to act. But first, you should understand the 2017 tax act that potentially provides benefits to private jet owners so you can make a confident and informed purchasing decision before it’s too late.

The 2017 Tax Cuts and Jobs Act

The private jet tax known as the Tax Cuts and Job Act was designed to reform current individual income and corporate income taxes that amends the Internal Revenue Code of 1986. The Act was also a way to move the United States to a territorial system of taxation for businesses. Here are some of the intentions behind the implementation of the 2017 TCJA according to the Tax Foundation:

Increase gross domestic product (GDP) by 1.7% over time, grow wages by 1.5%, and create 339,000 full-time-equivalent jobs by significantly lowering the cost of capital and marginal tax rates
Increase GDP by an average of 0.29% each year
Unleash economic growth in the form of an additional $1 trillion in federal revenues
Increase all taxpayers’ after-tax incomes over time by 1.1%

In short, the TCJA is a deeply revised tax law created for economic stimulation. It simplifies taxes and reduces the tax burden on businesses throughout the United States, and as you’ll see throughout the rest of this article, it can specifically benefit people who buy a new private jet.

But these changes are only temporary, as the specifics put forth in the 2017 TCJA will expire. See the section below entitled “The Expiration Date” to learn more about the time-sensitive benefits of this tax law.

How to Take Advantage of the TCJA

The good news is that you can take advantage of the TCJA if you’re considering buying a private jet. In addition to significantly changing the laws related to individual and corporate income taxes, the TCJA also adjusted how private jet taxes work. It enhanced the amount and timing of aircraft depreciation as related to income taxes, as well as which aircraft are eligible.

Before the passage of the 2017 TCJA, private individuals and corporations were able to deduct 50% of a private aircraft’s purchase price from their income subject to tax in their first year of ownership if the aircraft was used for business purposes. This immediate bonus depreciation deduction was set to decrease to 30% by 2019 and was only applicable to factory-new aircraft.

Now, under the guidelines of the 2017 TCJA, private jet depreciation rates that you can deduct jumped from 50% to 100% during the first year of owning the aircraft, both pre-owned and new. What this means for people looking to buy a private jet for business purposes is that they may be able to immediately write off 100% of their expenses from that purchase.

This benefit is highly appealing to anyone who is set to buy a private aircraft for business purposes, but it also provides an important reason why now is the appropriate time to buy.

The Expiration Date

Unfortunately, the 100% deduction described above will eventually be unavailable, as it is set to decrease to 80% after December 31, 2022. The following year, the tax benefit will drop to 60% and decrease by another 20% in each subsequent year until it is gone.

It’s hard to know what policy the government will propose to take the place of the 2017 TCJA, but you can know for sure that the tax deductions available now are time-sensitive and may benefit you greatly when filing your taxes.

Supply and Demand for Private Aircraft

The time restriction places an element of urgency on your decision to buy a private aircraft. You’ll want to take advantage of the 100% tax deduction for private jets before it decreases and ultimately expires. But know that other people are thinking the same thing as you.

People who have been considering buying private jets are now finalizing their decisions as December 31, 2022 rapidly approaches. And to say the looming 20% decrease in the available deduction is causing an increase in private jet sales would be a vast understatement. In fact, without the assistance of an experienced aircraft acquisition team, it may be hard to find a private jet of your own in the current market.

According to Business Air News, the current demand for pre-owned private jets is so high that the supply is at an all-time low. The reason is that pre-owned aircraft are all that’s available to buy on short notice. Anyone who wants to buy a new private jet must place their order in advance, sometimes several years before they receive it. New private jets are built to order as opposed to being mass-produced. With this low inventory comes higher prices on used inventory. New model years, high-quality aircraft, and low time airframes are all closing at what buyers feel are over-valued prices. Some buyers are unmotivated by the tax incentive, so they are willing to wait for the market to adjust and for prices to normalize. For others who are specifically looking for tax advantages, the full depreciation write-off will certainly help them to maximize their tax planning in 2022.

You’ll need to shop for a pre-owned private jet if you want to buy one before the 100% tax break decreases to 80% at the end of the year.

How to Secure a Deal

The best way to secure a deal on a private jet is to find a respected, professional private jet broker that knows how to navigate the current market with its high demand and low supply. A broker can negotiate a great deal for you, helping you navigate all regulations on the journey toward a completed sale. Know that it can take several weeks to finalize a private jet sale.

With December 31 on the horizon, now is the time to act. Latitude 33 Aviation can help you buy a private jet and offers many other services related to the purchase, ownership, and management of private jets of various sizes and models. From the initial inquiry to the final signature, Latitude 33 Aviation is ready to guide you through the entire township cycle, saving you time and helping you maximize your investment.

Looking to Purchase a Private Aircraft?

If you’re ready to take the next step toward owning a private jet, now is the time to act. The team at Latitude 33 Aviation is here to help you buy and manage your private aircraft in time to experience the tax benefits of the 2017 TCJA.

Our goal is to help you secure a private aircraft for your business needs, even in this current market when demand is at an all-time high. Contact us today to start the process of buying a private jet.