Wheels Up! Tax Law Change Makes Private Jet Ownership Affordable for Executives

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.

Articles and Commentary Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.  
Video Presentations All video presentations discuss certain investment products and/or securities and is being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect SHGA's or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.

Recent Posts

Aug 28, 2019
CNBC's Halftime Report Discussion on the Current Interest Rate Environment | August 28, 2019
Sand Hill News
Sand Hill News
CNBC’s Halftime Report Discussion on the Current Interest Rate Environment | August 28, 2019

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 state

read more
Jul 31, 2019
Sand Hill Launches Its New Digital Client Center
Anthony Craun
Anthony Craun,  CFA
Sand Hill Launches Its New Digital Client Center

Since our founding in 1982, Sand Hill has persistently sought to provide our clients and their families with the best practices, tools and technology offered

read more
Jul 30, 2019
Diversifying Concentrated Holdings
Elizabeth Cody
Elizabeth Cody,  CFP®
Diversifying Concentrated Holdings

Many dedicated employees, especially in Silicon Valley, eventually gain significant exposure to their own company’s stock by regularly participating in employee stock purchase plans (ESPP)

read more

Stay up to date, receive email updates from Sand Hill directly to your inbox!