March 2, 2022
Business Considerations for Aircraft Ownership and Operations
What to Think About Before Going Down the Path of Owning a Private Jet
A business jet is a depreciating asset with many regulations relating to its usage. Savvy business leaders look to the experts to guide them as they own and operate private jets, to ensure they’re in a good place financially and legally.
Keep in mind these complex business considerations as you work toward owning your first private jet - or expanding your existing fleet.
Used Private Jet Owners Must Comply with Global and Federal Aviation Regulations
Abandoning commercial air travel for good in favor of flying in comfort and privacy doesn’t mean you no longer need to comply with travel-related rules, nor does it mean you can lend your business jet out to your employees or use it for personal travel. If you’re based in the United States, the Federal Aviation Administration (FAA) expects you to meet their requirements for operating private aircraft.
For example, if someone pays you to use your private jet and crew, that is considered providing a transportation service, and neither you, nor your business, can legally be compensated for that. This is, in part, because the FAA imposes more strict regulations on commercial airlines and charter operators than they do on private owners.
You can, however, receive financial compensation from other parties for intra-company reimbursement (if a parent company charges other companies in a subsidiary relationship for use of the aircraft) or a time-sharing agreement, a type of lease that allows compensation for operating expenses. Always check with your company’s legal department before making such plans.
Document Aircraft Use Policies
To ensure your company and its subsidiaries properly utilize your business jet, it’s wise to work with your human resources department and legal counsel to draft policies and make them available to every relevant employee.
Clear policies can help you avoid liability and adhere to regulatory compliance requirements, while still helping to offset operational costs for owning and maintaining your business jet.
Work with Professional Service Providers to Ensure Regulatory Compliance
Should your finance department determine your business would greatly benefit from recouping operational costs, your best bet is to work with a charter management company who will provide management services and charter your aircraft to generate income. These experts can help you navigate considerations for compliance.
Used Private Jet Depreciation and Taxes
When it comes to federal, state, and local taxes related to owning a private jet, complexities abound. We could never outline every consideration here, so you must speak to your CFO, CPA, and other aviation tax professional for clarity.
Tax planning encompasses the initial acquisition of a pre-owned jet for sale, plus the long-term. The following list will help you understand considerations and give you a starting-point for talking to your team.
Used private jet depreciation is calculated using a five-year Modified Accelerated Cost Recovery System (MACR) if the aircraft is predominantly used in a qualified business use, or a six-year Alternative Depreciation System (ADS).
Aircraft used for personal reasons may depreciate under the Hobby Loss Rule.
You may not be able to apply losses from passive activity to active gains.
Certain non-business or entertainment use can affect depreciation calculations and deductions of related costs.
In terms of taxes, you should be aware of the following.
State laws and use taxes will vary, but most states have taxes that apply to aircraft purchases, property taxes, and registration fees.
If you’re selling your used private jet as a fully depreciated aircraft, your company could have significant depreciation recapture gain. Refer to Section 1031 (“1031 Tax-Free Exchanges”) of the Internal Revenue Code for more information.
In calculating federal taxes, include a per-gallon transportation tax and fuel tax. The transportation tax often applies to air carriers, but certain private flights could be subject to it. The fuel tax on private operations is higher than commercial ones.
Limiting Your Exposure to Liability
Owning a private jet comes with significant liability exposure. By limiting it, you can protect your business and yourself. The most common way to reduce liability exposure is by having the proper insurance that covers all parties and operations. Your insurance must meet federal and global regulations.
Your corporate structure, such as running your aircraft operations through a subsidiary, holding company, or dedicated limited liability company (LLC), also could reduce your liability exposure. Other corporate formalities that may protect your business include funding aircraft operations from separate bank accounts, avoiding using company aircraft for personal use without documentation, and registering business entities in the state where they operate.
Speak to your legal counsel for further details on limiting your liability while owning a private jet for business use.
Make the Right Investment in the First Place
To ensure your financial advisors don’t need to arrange for compensation to cover the cost of your aircraft, your best bet is to make the right investment when purchasing a private jet for sale. Understanding the true cost of an aircraft means you can determine your initial purchase budget and monthly allocation in advance, simplifying your tax obligations and ensuring you’re compliant with FAA regulations.
Partnering with a reputable aircraft dealer can help to ensure you’re making a smart decision. Your broker’s understanding of the complex world of private aviation can arm you with the information and expertise you need to track down the right pre-owned jet for sale for you. Fortunately, it’s quite easy to find an honest, trustworthy, and totally transparent aircraft dealer, no matter where you are in the world.
Ditch Your Jet Card with Help from AircraftExchange
Find the most ethical aircraft dealers in the world and view their listings of private jets for sale onAircraftExchange.com, the online portal for the International Aircraft Dealers Association (IADA). IADA Accredited Dealers are ready to help you secure a business jet at the best possible price and navigate the purchase process, so you can accept delivery of your plane without a hitch.