Taxes
Summary
1/8/2026. Read time: 10 min.
An aircraft is a legitimate and valuable business tool that generates deductible business expenses. Proper structure and record-keeping are essential to cover your assets from municipal, state, and federal taxation agencies.
Full disclosure: this high-level summary is meant to introduce you to categories of tax considerations. Professional advice is best for your detailed situation.
Details
Flight Department Structure
During the acquisition process, you want to set up the flight department and the operational cash flow legally. There are two options: direct ownership (either personally or through a business) or dry lease. There are actually a couple more options (wet lease: time share, interchange, and joint ownership), but they overcomplicate and don't add any benefit over a dry lease.
The cleanest solution is direct ownership through your company that is engaged in a non-flying business. The business owns the aircraft as an asset, funds operations in furtherance of its business, and deducts flight department expenses for business-related flights.
For privacy or for more complicated business situations (subsidiaries, sister companies, multiple companies, etc), creating a separate LLC to own the aircraft can make sense. This is a legitimate solution, but it creates a wrinkle with the FAA.
The FAA's concern is not taxes, but safety and liability. If you fly for money, you must meet higher regulatory standards. And if that LLC you set up does nothing but operate an aircraft and receive money to pay for operations (even if the businesses are related), the FAA views it as a charter operation. And if you don't have a charter certificate, it's an illegal one. This is the Flight Department Company Trap.
Consequences include: your pilots' licenses are suspended or revoked, your insurance policy is not in effect, your aircraft loan may be in default, and the IRS will want its 7.5% tax + late fees on all those payments you made to the LLC for commercial transportation.
The solution is a dry lease. The LLC can own the aircraft. The LLC then dry-leases the aircraft, which will transfer operational control (a technical term) to one or more businesses. That business then operates the aircraft on its own dime. Volia, you're back to flying privately in the FAA's eyes.
It doesn't matter that the same people are making the decisions, and that the money ultimately comes from the same revenue source. It's about paperwork.
Speaking of paperwork, your dry lease has a regulatory requirement (CFR 91.23) for aircraft over 12,500lbs to spell out a few things. The Truth in Leasing Clause requires the lease to include, among other things, a clear understanding of operational control and a 48-hour FAA notification before operations begin. Additionally, each entity that leases the aircraft will need its own FAA authorizations (LOAs).
An aviation-specific CPA or law firm that understands the nuances of the FAA is highly recommended to set up a dry lease.
Sales Tax
When you close, you can use a flyaway exemption to avoid sales tax on the value of the aircraft. It depends on the state you close in, when you fly it out, the paperwork you file, your type of business, the state you base the aircraft out of, and sometimes, if/when you fly back into the closing state.
Here is a list to get you started that is probably out of date, and you should definitely do your own homework. Assume you should promptly leave the state in all situations when utilizing a flyaway exemption.
Alabama — kind of (limited/conditional)
Alaska — no (but no general sales tax)
Arizona — yes
Arkansas — yes (but promptly leave)
California — yes (but you cannot have substantial use in California for the first 12 months)
Colorado — yes (but get out in 120 days and don't stay in Colorado more than 73 days over the next 3 years)
Connecticut — yes
Delaware — no (but no general sales tax)
Florida — kind of (but get out of the state within 10 days)
Georgia — kind of (for aircraft built in Georgia)
Hawaii — no
Idaho — yes (but promptly leave)
Illinois — yes (but promptly leave)
Indiana — yes (but get out in 30 days)
Iowa — yes
Kansas — yes (but get out in 10 days)
Kentucky — no
Louisiana — yes
Maine — yes
Maryland — no
Massachusetts — no (but aircraft sales have other exemptions)
Michigan — kind of (limited/conditional)
Minnesota — yes
Mississippi — kind of (limited/conditional)
Missouri — yes (but promptly leave)
Montana — no (but no general sales tax)
Nebraska — yes (but promptly leave)
Nevada — no
New Hampshire — no (but no general sales tax)
New Jersey — yes
New Mexico — no
New York — no
North Carolina — no
North Dakota — no
Ohio — no
Oklahoma — kind of (limited/conditional)
Oregon — no (but no general sales tax)
Pennsylvania — no
Rhode Island — no (but aircraft sales have other exemptions)
South Carolina — no (but cap at $500 no matter the aircraft value)
South Dakota — yes
Tennessee — yes
Texas — yes (but promptly leave)
Utah — kind of (limited/conditional)
Vermont — no
Virginia — yes
Washington — kind of (limited/conditional)
West Virginia — yes (but get out in 60 days)
Wisconsin — yes
Wyoming — no
On closing day, obtain proof of your presence: fuel receipt, flight logs, dated pictures, and reference to the Bill of Sale closing location. Once you fly out, show the same, including proof of the aircraft's base. Make sure to submit any required paperwork to the closing state's taxing agency if required. Don't skimp on advice here; it could cost thousands to millions in taxes if you get it wrong.
Use and Property Tax
While you can avoid sales tax, use tax (ongoing sales tax) is a thornier issue. If you live on a state line, you could base your operation on the more tax advantageous side, but for most, this tax isn't going to determine your operation.
Some jurisdictions have a flat property tax based on the aircraft's value (ad valorum) or a flat/weight-based registration fee. Other states prorate the tax based on their time (use) in the state. Other states tax aircraft used for regular travel within their state (established situs), even if the aircraft is based in another state. And others exempt use tax entirely because there is no sales tax, or because they meet certain business use thresholds.
Gotchas: California, Texas, and Florida have more aggressive stances on use in their states. And Washington, coming 4/1/2026, adds a 10% luxury excise tax (sales and use) on aircraft over $500k.
You need to drill down to the municipal-level regulations and forms of your home base, not necessarily where the aircraft is registered, to find what is due. You might need to investigate whether your common destinations tax out-of-state aircraft. Again, professional guidance is recommended.
Business deductions
Aircraft generate a lot of deductions when flown for business purposes. But having an aircraft for deductions is a losing game. The ongoing operational cost will always outweigh the deduction benefit. The value added of an aircraft is increased productivity, time savings, personal presence, security, privacy, and convenience. The tax deductions help, but they should not drive the bus.
Depreciation
Starting with the purchase, there are several levers in the tax code you pull.
Bonus Depreciation
MACRS
Straight-Line
100% Bonus Depreciation
Thanks to the One Big Beautiful Bill Act (OBBBA) in 2025, 100% bonus depreciation is available for aircraft purchased in early 2025 and on, permanently- if you meet the qualifications. An aircraft is a "Listed Property" under IRS rules, which requires greater than 25% qualified business use and greater than 50% business use to accelerate a deduction. The 25% is a special exception specific to aircraft per IRC §280F(d)(6)(C)(ii).
MARCS
100% bonus depreciation accelerates MACRS, but MACRS is the accelerated depreciation system, the foundation. MACRS accelerates depreciation over a shorter period (5 years for business-use aircraft, 7 years for personal-use aircraft) and front-loads depreciation in the early years, trailing off after year three. The same qualifications and recapture rules apply.
Straight-Line
Straight-line depreciation is an alternative depreciation schedule that evenly distributes deductions over a time period, usually 6 years for private or business use. Straight-line does not have the business usage requirement. Meaning if 90% of the use is personal, you can deduct 10% of the straight-line deduction amount for that year and the expenses incurred for the 10% business flights. Stay above 50% business to unlock more deductions.
Depreciation Calculator
| New or Used Aircraft | |
| Aircraft Model | |
| Aircraft Cost ($) Override any price as needed | |
| Salvage Value (%) | |
Business Use and Personal Use
Back to the fringe benefits, or I should say, on to record keeping. You have these IRS categories of operations: qualified business, business, business entertainment, personal, and personal entertainment. What's the difference?
Qualified business use is ordinary and necessary to the business, judged per-passenger per-flight. You fly the aircraft to a location to close a deal, see a client, conduct training, conduct maintenance, or for 3rd-party leasing (dry lease or charter). These flights count towards the 25% of flights required as a prerequisite and towards the 50% business use required to get the 100% bonus depreciation or MARCS depreciation write-offs. The trip expenses are also deductible.
Business use (unqualified) is a larger category. It covers all qualified business use, and if you meet the 25% threshold of qualified business use, it also captures personal flights imputed to the user (W2/K-1) as income via a fringe benefit (keep reading) that counts toward your 50% bonus/MACRS qualification. These trip expenses are also fully deductible.
Business entertainment is treated differently by the IRS. You treat a client or employee to a golf outing, for example. The E-word means these trips are not counting towards the 25% or 50% accelerated depreciation calculations. If the passenger is imputed the trip as income, only the imputed (SIFL) amount is deductible, not the full cost of the trip.
Personal (non-entertainment) flights include trips to a second home or to transport spouses, kids, or parents for non-recreational purposes. These flights can be imputed as income to the employee (SIFL) for themselves and family members, and trip expenses become fully deductible. As stated above, when done this way, and you have already reached the 25% qualified business use, these trips count towards the 50% business use test for accelerated depreciation deductions.
Personal entertainment flights (hunting trips, sporting events, etc.) do not count toward any business use. Like business entertainment, only the imputed income (SIFL) is deductible. If qualified business use drops below 25% and/or total business use drops below 50%, you must recapture the bonus depreciation on a straight-line basis.
In an audit, you need to prove if and how each flight qualifies for deductions. For all flights (keep records for 7 years), you need supporting documentation: flight logs, trip sheets, hotel/transportation receipts, fuel/maintenance receipts, and passenger lists. For business flights, keep meeting information, agendas, emails, meeting minutes, signed deals, etc. Anything to show the purpose of your trip.
Armed with this and SIFL, you should be able to show the IRS in an audit how you calculated deductions, disallowances, and fringe benefits over the prior 3 years, ideally 7.
What is SIFL?
It is the IRS compensation rate used to determine an employee's imputed income for personal flights. The Standard Industry Fare Level (SIFL) is adjusted every six months. It's composed of a departure fee and a tiered per-mile fee. Armed with this info and the date, distance traveled, aircraft weight, and whether the employee is a control (first class) or non-control (coach) employee, you're ready to get a number.
It's complicated. Below is a calculator; accuracy is not guaranteed. Note: this is a simplification; there are additional rules, such as if the aircraft is 50% full of employees on business and family members tag along personally, or trips with intermediate stops, or if there are security concerns. If you haven't picked up on it yet, this is a job for a COA or accounting department.
SIFL Imputed Income Calculator
| Aircraft Model Weight determines calculation | |
| Employee Type Control vs Non-Control | |
| Flight Date Latest SIFL Values 12/31/2025 | |
| Departure Airport Type ICAO or name | |
| Arrival Airport Type ICAO or name | |
| Total Mileage Cost | |
| Mileage Cost (0–500 SM) | |
| Mileage Cost (501–1,500 SM) | |
| Mileage Cost (>1,500 SM) | |
| Multiple (Weight/Control) | |
| Multiplied Mileage Cost | |
| Terminal Charge Per Passenger | |
| SIFL Value Per Passenger | |
FET
Federal Excise Tax is typically for commercial operations. You charter an aircraft and pay 7.5% FET on the cost. If, as a part 91 operator, you are paying a FET, it can complicate compliance on the FAA end.
There is a regulatory divide between the IRS and the FAA. The IRS has no problem with an employee reimbursing a company for personal flights to reduce imputed income, or with timeshare reimbursements (as long as a FEX is paid).
However, the FAA takes a firm stance against private operations being paid, including employee reimbursement, without the proper charter certificate, see the Flight Department Company Trap. The cleanest solution is to impute income as a fringe benefit, at the cost of fewer business deductions.
SEC
Not taxes, but related. Publicly traded companies under the jurisdiction of the SEC are obligated to disclose to investors the compensation of the CEO and the highest earners, as well as the expenses incurred for business assets (such as an aircraft).
The SEC is not concerned with the CEO's imputed income for taxes, but with the total cost to investors. The imputed SIFL rate is not what they are after. The SEC wants the incremental direct operating costs for personal trips—fuel, landing fees, catering, crew lodging, and transportation, etc.
It is another calculation highly dependent on the details. For instance, if there are empty legs or legs with business and personal passengers, the incremental cost changes. More work for accounting.
Wow, you made it. Final disclosure, which seems to be required anytime you talk about taxes: get professional help, your details matter, and the rules are constantly changing.
Aviate
Reach out to a professional to set up the legal structure for your flight department. Some suggestions:
Get your record-keeping in order:
Flight log: trip sheets, expenses, passenger lists, trip categorization
Business documentation: meeting info, agendas, emails, minutes, etc.
Check out the above calculators for an idea of deduction types and SIFL income imputation.
