Latest / The High Net Worth Podcast with Fexingo: Wealth Management, Tax Strategy, and Affluent Finance / How Wealthy Families Use Aircraft Depreciation for Tax Savings
Transcript
- Lucas: So let's talk about something that sounds a bit absurd at first — using a private jet to reduce your tax bill. But the math is genuinely compelling if you're in the right bracket. Luna: You're talking about aircraft depreciation under MACRS? Because I've seen some family offices treat a Gulfstream almost like a real estate play. Lucas: Exactly. The Modified Accelerated Cost Recovery System lets you write off a huge chunk of a plane's cost in the first few years. We're talking about bonus depreciation — which as of 2026 is still at 80 percent for new assets placed in service this year. Luna: So if you buy a Gulfstream G650 for, say, $65 million, you could deduct more than $50 million in the first year? Lucas: That's the idea. Plus Section 179 allows you to expense up to about $1.2 million immediately — but that's peanuts compared to bonus. The key is that this depreciation can offset income from other sources, not just from the plane itself. That's what makes it attractive for wealthy families who have W-2 income, capital gains, or business profits they want to shelter. Luna: But the IRS isn't stupid. There are rules about business use. You can't just buy a jet for personal trips and call it a business expense. Lucas: Right. To qualify for the full depreciation, the aircraft has to be used more than 50 percent for business. And 'business use' is strictly defined — commuting to your own office doesn't count unless you have a legitimate business reason to be there that day. You need detailed flight logs, passenger manifests, and a clear purpose for each trip. Luna: I've heard of families getting audited and losing the deduction because they couldn't prove that a trip to their vacation home was actually a board meeting. Lucas: Exactly. The IRS has a whole team focused on aircraft audits. They look for 'hobby losses' — if the plane generates more deductions than income over time, they'll reclassify it as a personal asset. So you need to either use the plane for an active trade or business, or lease it to your own company at fair market rates. Luna: Which is why many family offices set up a separate LLC or S corporation to own the aircraft. Then they lease it back to their operating businesses or even to other parties. Lucas: That structure creates a legitimate stream of income — lease payments — which justifies the depreciation. And the passive activity loss rules can still limit how much you deduct against ordinary income, but if you structure it right, you can often net a significant tax benefit. Luna: There's also the option of fractional ownership through NetJets or Flexjet. But I don't think those qualify for the same bonus depreciation because you're buying a share, not the whole asset. Lucas: That's right. Fractional shares are treated as eligible for bonus depreciation, but only if the share is at least 10 percent and the plane is used predominantly for business. And the depreciation is proportional to your ownership. So it's less aggressive than owning the whole plane. Luna: But for someone who doesn't fly 400 hours a year, fractional might make more sense — even if the tax benefit is smaller. Lucas: Absolutely. You have to match the strategy to your actual usage. A family that flies 50 hours a year shouldn't buy a G650 just for the deduction. The IRS will see through that. But if you're already flying 300 hours for business, the tax savings can be enormous. Luna: And we should mention that bonus depreciation is phasing down. In 2026 it's 80 percent, in 2027 it drops to 60 percent, and by 2029 it'll be zero unless Congress extends it. Lucas: Good point. So there's a bit of a rush right now for families considering a purchase. If you're thinking about it, 2026 is a strong year to act. But you also need to plan for the long term — the depreciation recapture when you sell the plane. Luna: Right, because if you take $50 million in deductions and then sell the plane for $40 million, you'll have a gain that's taxed as ordinary income up to the amount of depreciation taken. Lucas: Exactly. It's not a free lunch. It's a deferral. But deferring taxes for 10 or 15 years at today's rates — especially if you can reinvest that money and earn a return — can be a huge win. Luna: And if the plane is held in an S corporation, the depreciation flows through to the shareholders' personal returns. That can offset high-income earner taxes like the 3.8 percent net investment income tax. Lucas: Speaking of taxes — and this is a bit of a tangent — you know, we talk about these strategies because we genuinely believe that smart, legal tax planning is one of the most valuable things a financial podcast can cover. And we do it without any ads, without any sponsors pushing products. That's a choice we've made from day one. Luna: Yeah, and it's not always the easiest path. But we think it keeps the conversation honest. If you find value in that approach, the best way to support it is through our listener-supported model. Lucas: Exactly. It's at buy me a coffee dot com slash fexingo — all one word, lowercase. No pressure, but it helps us keep doing deep dives like this without worrying about ad revenue. And we really appreciate those who do. Luna: Alright, back to the hangar. So beyond the tax math, there's another angle: using the aircraft for charitable travel. If you fly board members to a nonprofit's site, that could count as business use for the plane. Lucas: That's a smart overlay. Many family foundations own or have access to a plane. They document the flights as part of the foundation's work, and the depreciation helps reduce the donor's taxable income. But you have to be careful — the IRS scrutinizes mixed-use planes more than any other asset class. Luna: What about the 'commuting rule'? I think there's a specific exception that allows some personal use if the plane is used for business travel to remote sites. Lucas: There is — it's called the 'qualified business use' definition under Section 274. But it's narrow. If you fly from your home to a factory that's 200 miles away, that's business. If you then fly to a resort for the weekend, that's personal, and you need to account for it separately. The IRS wants to see that personal use is less than 25 percent of total use to avoid a full recapture. Luna: So the documentation burden is real. I know of a family that uses a third-party flight tracking service that logs every takeoff and landing, and they have a scheduler who categorizes each trip. Lucas: That's exactly what you need. If you're going to take a $50 million deduction, spending $50,000 a year on compliance software and a part-time administrator is table stakes. The IRS has won cases where the taxpayer had sloppy logs — they disallowed the entire deduction. Luna: One more thing: the 'carried interest' loophole doesn't apply here, but there is a way to use an aircraft in a fund structure. If a private equity firm owns the plane and charges management fees, the depreciation can offset the fee income. Lucas: That's a more advanced structure. But the same principles apply: the plane must be used for bona fide business activities, not just for partners' vacations. And the IRS has been aggressive on fund-owned aircraft. There are several Tax Court cases from the last decade where the IRS won. Luna: So the takeaway is: aircraft depreciation is a powerful tool, but only if you have real business usage, meticulous records, and a structure that can withstand IRS scrutiny. Lucas: And the clock is ticking on bonus depreciation. If you're in the market for a plane and you want the 80 percent write-off, 2026 is your year. After that, the window narrows. But as always, talk to a tax advisor who specializes in aircraft — not your general CPA. Luna: Good advice. Thanks, Lucas. That's a wrap on this one.