Sand Hill’s Chief Investment Officer, Brenda Vingiello, CFA, returned to CNBC’s Halftime Report on August 28, 2019 to discuss interest rates and the current stateread more
Wheels Up! Tax Law Change Makes Private Jet Ownership Affordable for Executives
Executives who previously determined that private jet ownership was unaffordable may now be able to justify this purchase thanks to the Tax Cuts and Jobs Act (TCJA) signed into law last December. Among other things, like more generous expensing provisions in general (see our 2018 Tax Code Review), the new tax law now allows business owners and executives to write off 100% of the price of a new or used airplane purchased by a company. Previously, buyers of new planes could deduct up to 50% of the cost of an aircraft in the first year; but deductibility of used plane purchases were handled over a longer period. To be eligible for this new deduction opportunity, you cannot have entered a written binding agreement with the aircraft seller prior to September 27, 2017.
There are – surprise, surprise – some tax-related strings attached. If the company wants to later sell the airplane, it would need to pay back virtually all of the deduction less depreciation at the time of sale. Another important consideration is that to qualify for the full 100% deduction, the plane must be strictly used for business purposes only, and the business owners and executives should expect this will be closely scrutinized. If the aircraft is used for personal use – such as entertainment or recreation – then the deductibility is limited unless the executive has income imputed for the use of the plane. Additionally, there may be specific tax-related requirements for how the aircraft is owned – for example, owned by a separate legal entity or as a direct asset of the operating business.
In other words, it’s no longer “sky’s the limit” on personal use. Under the previous law, personal non-entertainment use, such as in the case of commuting to your place of business, was allowable as a deduction if the use met certain requirements. Under TCJA, commuting is non-deductible except if the use is necessary to ensure the safety of the employee. Additionally, business entertainment use of the aircraft is now non-deductible.
Still, the benefits of private jet travel for busy executives are clear. The most valuable – and limited – commodity for any business executive or owner is typically TIME. The private jet model allows more functional time management in a number of ways, but most notably through access, flexibility and efficiency. Private jets are able to fly into many small airports where commercial flights don’t go, allowing executives to fly even more direct than a direct commercial flight.
It may be true that travelers are less interested in actually owning a plane than they are in simply having access to private air travel as needed. Other alternatives to full ownership are fractional ownership or leasing through a private jet membership company, such as NetJets or JetSuite.1 However, making a decision between full, fractional or jet card use purely based on the required travel hours in a year is not advisable. There are a host of other considerations such as: specific needs, number of passengers, number of users and their locations, and instances where multiple aircrafts may be necessary. Of course, integral to the company’s budget planning is determining whether a fractional ownership with a smaller upfront outlay and smaller ongoing commitments is more sensible than tying up larger amounts of capital in a full ownership model.
Considering every element of the company’s financial and flight needs is key to making the best decision for your business. This includes the input of professional tax advice and possibly the use of a private jet consultant who, at a cost, has the potential to save the company a bundle if mistakes are otherwise made flying it alone.
1Sand Hill Global Advisors, LLC (“SHGA”) is a registered investment adviser with the Securities and Exchange Commission. Such registration does not imply a certain level of skill or training. NetJets and JetSuite are separate entities and not affiliated with SHGA and as such, SHGA neither represents nor endorses any product or business named in this article.
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