Latest / The High Net Worth Podcast with Fexingo: Wealth Management, Tax Strategy, and Affluent Finance / How Ultra-Wealthy Families Use Private Aircraft Depreciation
Transcript
- Lucas: So you're a high-net-worth individual, or maybe you run a successful business, and you're thinking about buying a private jet. The upfront cost is eye-watering — we're talking anywhere from three million for a light jet to seventy-five million for a top-end Gulfstream. But here's the thing: for the right buyer, the tax benefits can offset a huge chunk of that price in the first year alone. Luna: I've heard people say you can 'write off' a plane. Is that actually true, or is that one of those cocktail-party exaggerations? Lucas: It's real, but there are very specific rules. The two big levers are Section 179 expensing and bonus depreciation. Under current law — and this is as of mid-2026 — bonus depreciation is phasing down. It was 100 percent for assets placed in service after September 27, 2017, but it's been stepping down by 20 percent each year. For 2026, bonus depreciation is at 40 percent. So if you buy a ten million dollar jet this year, you can deduct four million right off the bat under bonus alone. Luna: Plus Section 179. That's another chunk, right? But there's a cap on Section 179 for vehicles. Lucas: Exactly. Section 179 has an annual limit — for 2026, it's around one million twenty thousand dollars in total, but there's a specific sub-limitation for 'sport utility vehicles' over six thousand pounds gross vehicle weight. And here's where it gets interesting: most private jets weigh well over six thousand pounds — a Cessna Citation Mustang, the smallest, has a max takeoff weight of about 8,645 pounds. So they qualify as vehicles not subject to the luxury auto cap. You can take up to the full Section 179 limit on a plane that costs over a million, as long as you use it more than 50 percent for business. Luna: So the plane has to be used mostly for business. But what counts as 'business use'? If I fly to my vacation home, is that business? What if I take clients? Lucas: Great question. Business use includes flights for your trade or business — visiting job sites, meeting clients, attending industry events. Personal use is anything non-business, including commuting, unless your primary business falls under certain exceptions. There's something called the 'disqualified lease' rule, too. If you lease the plane back to a related party, you can run into trouble. The key is that you, as the owner, must use the aircraft more than 50 percent for qualified business use in the year you place it in service. If you drop below that in a later year, you may have to recapture some of the depreciation. Luna: And if you go over the business-use threshold, you can deduct the full cost over time. But I've heard of people using something called a 'cost segregation study' on aircraft. What is that? Lucas: It's usually applied to real estate, but you can do it on a plane too. A cost segregation study breaks down the aircraft into components — engines, avionics, interior, paint — and assigns different depreciable lives to each. Some components might be five-year property instead of seven. The IRS has accepted this approach, but you need a qualified engineer to do the study. The result is you accelerate depreciation even further, often increasing first-year deductions by 20 to 30 percent. Luna: That's a lot of deduction. But let's be real — isn't this just a way to justify buying a toy? I mean, how many businesses really need a private jet? Lucas: Fair point. The IRS is aware of that, which is why they have the 'hobby loss' rules and the 'extravagant' test. If your business is a one-person consulting shop and you buy a Gulfstream, you're going to get audited. But for a real estate developer with properties in five states, or a manufacturer with multiple factories, the plane can genuinely save the principal's time. There's a famous case — I think it was a real estate mogul named John A. something — who successfully defended the business use of his jet because he used it to visit properties. The key is documentation: flight logs, passenger manifests, purpose of each trip. Luna: So if you're legit, the tax code is generous. But what about the net investment income tax? If you're ultra-high-net-worth, you might be subject to the 3.8 percent surtax on net investment income. Does aircraft depreciation offset that? Lucas: It can, if the aircraft is used in a trade or business. Depreciation deductions reduce your net income from that business, which in turn can reduce your modified adjusted gross income, potentially lowering the surtax. But if the plane is owned purely for investment — say, you rent it out — the depreciation might be limited by the passive activity loss rules. Most high-net-worth buyers structure ownership through a business entity — an LLC or an S corporation — that actively uses the plane. Luna: What's the most common mistake you see people make with this strategy? Lucas: The biggest one is failing the business-use test in the first year. If you put a plane in service in December and take a huge bonus depreciation, but you only had two business flights and five personal flights, the IRS can disallow the entire deduction. Another mistake is ignoring state taxes. Some states don't conform to bonus depreciation. California, for example, decouples. So you might get a federal deduction but owe state tax on the same income. You need a tax advisor who knows both federal and state rules. Luna: Practical and tricky. Let's take a real example: someone buys a pre-owned Gulfstream G650 for twenty-five million dollars in June 2026. They use it 70 percent for business. Walk me through the first-year tax math. Lucas: Okay. First, the plane is seven-year property under MACRS. But with bonus depreciation at 40 percent for 2026, you get a ten million dollar deduction right off the bat — twenty-five million times 40 percent. Then the remaining fifteen million goes into the MACRS tables. In year one, the MACRS rate for seven-year property under the half-year convention is about 14.29 percent. So that's another roughly two point one four million. Plus, you can take Section 179 up to the one million twenty thousand limit, but only on the portion not covered by bonus. So let's say you elect Section 179 on one million of the remaining cost. Your total first-year depreciation: ten million bonus plus two point one four million regular plus one million Section 179 equals roughly thirteen point one four million. That's over half the purchase price. Luna: That's huge. But you mentioned bonus is phasing down. What does the timeline look like? Lucas: For 2027, bonus depreciation drops to 30 percent. Then 20 percent in 2028, 10 percent in 2029, and zero after that unless Congress renews it. So if you're considering a plane purchase, the tax benefit is time-sensitive. Many buyers accelerated purchases into 2025 to catch the 60 percent bonus. Now, in 2026, it's still significant but less. Some are structuring deals to place the plane in service before year-end to lock in the current rate. Luna: And what about leasing? Instead of buying, some wealthy individuals lease aircraft. Does leasing offer similar tax benefits? Lucas: Leasing can be beneficial, but the tax benefits flow to the lessor, not the lessee. If you're a lessee, you deduct the lease payments as a business expense. That's simpler, but you don't get the huge upfront depreciation. Some high-net-worth individuals set up their own leasing company, but that has to be carefully structured to avoid being a 'sale and leaseback' that triggers recapture. A popular strategy is to buy the plane through a partnership, allocate the depreciation to the partners, and then have the partnership lease the plane back to the partners' businesses. That's complex but can work if done right. Luna: And it sounds like a ripe area for IRS scrutiny. What are the audit flags? Lucas: Number one: personal use that's not properly tracked. The IRS expects contemporaneous logs — not reconstructed after the fact. Number two: claiming 100 percent business use when you clearly fly to vacation destinations. Number three: using the plane for entertainment — flying clients to a golf weekend — which is only 50 percent deductible after 2017 tax reform. And number four: failing to report fringe benefit income for personal flights provided to employees or owners. If you let your family use the plane, you have to impute income based on the Standard Industry Fare Level rates, or SIFL. Luna: There's a lot to manage. But for someone who genuinely needs a plane, the tax benefits can make the economics work. What's the bottom line? Lucas: The bottom line is that aircraft depreciation is one of the most powerful tax deferral tools available to high-net-worth individuals — but only if you have the business use to back it up and the discipline to document everything. If you're just buying a toy, you'll lose. If you're buying a tool, the tax code is surprisingly generous. And with bonus depreciation phasing down, the window is narrowing. Luna: Before we wrap, I want to come back to something that makes all this possible. The reason we can dig into these strategies without having to sell ads or push products is that listeners like you support the show directly. Lucas: Yeah, it's a pretty simple model. If you've gotten value from these episodes — maybe it's helped you think about a tax move or a wealth structure differently — you can help us keep going. A couple of dollars a month is genuinely what keeps this ad-free. Luna: And it really does add up. There's a link in the show notes, or you can go to buy me a coffee dot com slash fexingo. That's it — no tiers, no exclusive content, just a way to say the show matters. Lucas: And it matters to us. So thank you. Now, back to the bird — we've covered the tax strategy on paper, but let's talk about a real-world case that went to court. There's a Tax Court case from a few years ago involving a doctor who bought a King Air 350 and tried to deduct the full cost. The IRS challenged him, and it's an instructive read. Luna: Oh, I want to hear this. What happened? Lucas: The doctor was an anesthesiologist who owned a practice. He used the plane to fly to multiple hospitals in different states. He claimed 100 percent business use, but the IRS found that he flew his family to Disney World and didn't impute income. He also didn't have adequate logs. The court allowed some deductions but denied a large portion. The takeaway: even if you have a legitimate business purpose, poor documentation can cost you. Luna: So the tax strategy is powerful, but it only works if you treat it like a business asset, not a perk. That's a good note to end on. Thanks, Lucas. Lucas: Thanks, Luna. And thanks to our listeners. If you're considering an aircraft purchase, talk to a tax advisor who specializes in aviation. The rules are detailed, but the payoff can be substantial.