private jet tax Archives - Latitude 33 Aviation

Private aircraft can be a valuable tool for companies seeking increased accessibility, efficiency, and flexibility. While there may be numerous advantages to leasing or owning corporate aircraft, there are some important tax implications to understand beforehand. Fortunately, there may be room for tax deductions to lower these financial expectations.

This guide explores private jet tax implications and the various tax breaks for owning a jet to help you make an informed decision that aligns with your financial circumstances and business goals. It also delves into steps you can take to improve your chances of qualifying for tax deductions.

Private Jet Tax Implications

Owning and using a private jet may come with important tax considerations. Here are four of these tax implications to keep in mind:

1. Type of Personal Use

When someone uses company aircraft for personal reasons, they may incur tax. This is categorized as personal entertainment use or personal non-entertainment use. The category personal use falls into often depends on whether a spouse or guest was present, the agenda, and the time spent on personal or business activities.

For example, a personal entertainment flight might involve a trip to a sporting event or concert. Personal non-entertainment flights may include travel for medical treatment, work, or a funeral.

2. Imputing Income

A company may need to credit fringe benefit income to an employee when they use the company aircraft for personal non-business use. Two ways to measure the value of the employee’s transportation for accurate and correct reporting are to consider the charter rate for the trip or use Standard Industry Fare Level numbers. The company must report the imputed income on the employee’s W-2, and the employee must report the income on their personal tax return and pay the income tax.

3. Sales and Use Taxes

It may be helpful to consider purchasing an aircraft in tax-friendly jurisdictions for more manageable state sales and use tax requirements. Look into states that offer exemptions for aircraft purchases, no sales taxes or fly-away exemptions, which allow purchasers to avoid state sales taxes when they leave the state within a specified period.

4. Excise Taxes

Your private jet may incur excise taxes from the federal government on payments for aircraft fuel and air transportation. For this reason, it may be best to follow the appropriate ownership structure and avoid placing the jet in a separate legal entity that may trigger excise tax.

Are Private Jets Tax Deductible?

While private jets cannot be written off on taxes entirely, certain aspects of their taxes are eligible for tax deductions. For example, some necessary expenses associated with trade or business activities may be deducted. Therefore, it is important to track the different uses and travel expenses to allocate expenses appropriately between personal and business use.

What Are the Tax Breaks for Owning a Jet?

There are numerous tax benefits you can get from owning a private jet, from deducting maintenance and operating expenses to depreciating costs over your jet’s useful life. Here are a few private jet tax breaks you may leverage as a corporate jet owner:

Business Purpose Deductions

One of the most common private jet use deductions is when a person uses the jet for business purposes. Using aircraft for business purposes allows you to deduct costs related to insurance, fuel, maintenance, pilot salaries, hangar fees, and lease or loan interest payments.

It is important to make sure your jet is primarily used for corporate reasons to help you qualify for this tax benefit and many others. In these cases, you will want to maintain a meticulous record of business activity expenses and the purpose of each flight to demonstrate its benefit to your business.

Depreciation

According to the Tax Cuts and Jobs Act, bonus depreciation helps you deduct a reasonable amount of your jet’s cost. Originally, this rule included a 100% bonus depreciation write-off, which expired at the end of 2022.

The law is set to phase out by 20% each year. In 2023, the bonus depreciation was 80%. Following this, 2024’s bonus depreciation is 60%, 2025’s will be 40%, and 2026’s will be 20%. The bonus depreciation will be 0% in 2027 and beyond.

To avoid the recapture of bonus depreciation, your aircraft should be used for qualified business purposes at least 50% of the time during its depreciable life.

Federal Tax Credits

Particular use activities, such as using the aircraft in relation to research and development, may qualify for federal tax credits. Check for eligible activities and expenses and speak with a tax advisor to ensure you document them correctly and follow the appropriate filing procedure.

State Tax Credits

Private jet owners may also qualify for state tax credits on activities related to economic development and job creation as it incentivizes private jet ownership to improve local economies. Check whether there are available state tax credits in your region and speak with tax professionals to find ways to maximize credits.

Charitable Flights

You may be eligible for deductions when using your private jet for charitable objectives, such as for delivering humanitarian aid. Consult IRS guidelines and a tax professional for guidance and keep a detailed record of these flights and their related expenses.

Tax Benefits of Chartering a Private Jet

While owning a private jet may come with worthwhile tax benefits, it’s worth considering alternative options like private charter flights to avoid some private jet ownership tax implications.

Chartering a private jet for business purposes may allow you to deduct some chartering costs as ordinary business expenses. Chartering also offers flexibility by allowing you to fly on a well-equipped jet on short notice, without needing to prepare staff or take care of other aircraft management activities.

Buy or Charter a Private Jet With Latitude 33 Aviation

Whether you choose to partake in private jet charter flights or invest in owning a private aircraft, Latitude 33 Aviation may be able to assist you.

Latitude 33 Aviation is an aircraft sales and acquisitions, executive jet management, and private jet charter company in California. We offer our clients some of the latest aircraft models from industry-leading manufacturers, whether new or pre-owned. Clients may also choose from different types of jets, including light, midsize, super-midsize, and heavy private jets. If you plan to use our private charter services, you can expect flexibility regarding aircraft availability, improved time savings, and privacy and comfort.

Receive private jet assistance from our professional sales team by contacting us for more information today.

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.

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.

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