Today’s market offers many options for private aircraft ownership. Whole aircraft ownership is a great choice for many buyers, but we are seeing an increased interest in fractional ownership programs and shared ownership structures. It is worth taking the time to understand the various ownership options and the unique tax impacts of each.
Many fractional ownership programs offer simplified operations and predictable costs, and are treated very similarly to whole aircraft for federal tax purposes. The acquisition costs could be eligible for bonus depreciation if the underlying conditions are met. The costs incurred during the year, which usually include a monthly management fee and hourly operating cost, may be deductible pro rata to the business use. State tax planning, including sales, use, and property taxes, can be unique, as some states have clearly defined rules specific to fractional programs.
When looking into multi-ownership, there are a number of options. I wrote about some of these options in more detail last January in “Multi-Owner Aircraft Structures”, which discussed the tax differences between co-ownerships and multi-member LLCs. Another multi-owner structure that we see on occasion is a joint ownership, which allows additional flexibility for cost sharing, but restrictions on operations. Each of these structures has very different tax results and should be vetted carefully.
In any case, the IRS recordkeeping and documentation standards to uphold deductibility of your aircraft are the same. As I have shared many times before, flight details must be kept on a leg-by-leg basis, and any business use must have written and contemporaneous records to substantiate the business purpose.
If you are looking into aircraft ownership options, make sure you have the right advisors on your team to help you make the best decision for your missions and lifestyle. Be sure to include an aviation tax advisor so you do not have any surprises at the end of the year.