If you are considering buying a Jet for personal use, then it only makes sense to consider what the tax consequences of that purchase may be. It also makes sense to consider what alternatives may exist to limit tax exposure or recoup some of the costs of ownership. The Tax Cut and Jobs Act of 2017 has a mixed bag of help and challenges when it comes to deductions and business expenses. Most notable is the availability of bonus depreciation which allows 100% depreciation of equipment (including business aircraft for the time being) and pretty strict interpretations of personal use for those business aircraft. FAA definitions in the Federal Aviation Regulation (FAR) are often cited by the IRS, in rule making on permissible deductions. So in order to discuss business applications vs. personal use of aircraft, we cannot avoid some discussion of FAR.
But the big four federal tax issues for business aviation (according to Jed Wolcott of the National Business Aircraft Association Tax Committee Advisory Group) are going to be:
- Ordinary and Necessary Use ( IRC 162-2)
- Hobby Loss Rules (IRC 163)
- Passive Activity Restrictions (IRC 469) and
- Non-business Use of Company Aircraft (Treas. Reg. 1.62(b)1, 1.61-21, IRC 274-10)
In future, posts I will touch on each of these issues and current public discussion associated with each of them. While 1st Jets brokers are not financial advisors, we do keep your financial considerations in mind and can refer you to tax professional who’s specialization matches your financial concerns.