General
Taxes and Financing
Your aircraft may qualify for 100% depreciation during the first year of ownership. Congress passed the 2017 Tax Cuts & Jobs Act in 2017, and President Trump signed the Act into law on December 22, 2017. The Act repealed the long-standing IRC § 1031 like-kind exchange provision and replaced it with a short-term provision that provides immediate expensing for aircraft.
Under the new Act, taxpayers may be able to deduct up to 100 percent of the cost of a new or pre-owned aircraft purchased after September 27, 2017 and placed in service before January 1, 2023. This 100 percent expensing provision is a huge bonus for aircraft owners and operators. Under the prior law, aircraft owners were limited to depreciating aircraft over a five to seven year period. After December 31, 2022 the Act decreases the percentage available each year to depreciate qualified property until December 31, 2026:
80% for property placed in service after December 31, 2022 and before January 1, 2024.
60% for property placed in service after December 31, 2023 and before January 1, 2025.
40% for property placed in service after December 31, 2024 and before January 1, 2026.
20% for property placed in service after December 31, 2025 and before January 1, 2027.
0% (bonus expires) for property placed in service after December 31, 2026.
For certain property with longer production periods, like new aircraft, the beginning and end dates in the list above are increased by one year. For example, bonus first-year depreciation is 80% for long-production-period property placed in service after December 31, 2023 and before January 1, 2025. If you signed a purchase agreement for an aircraft before September 28th, 2017, it is possible that the aircraft will not qualify for 100 percent expensing. This hinges on whether the purchase agreement was binding on the aircraft buyer.
Title and Registration
No. Generally, a corporate jet may be registered in the U.S. only when the corporate jet is owned by a U.S. citizen. Per U.S. Federal Aviation Regulation (FAR) 47.2, with respect to an entity, a U.S. citizen is defined as “a corporation or association created or organized under the laws of the United States or of any State, Territory, or possession of the United States, of which the president and two-thirds or more of the board of directors and other managing officers thereof are such individuals and in which at least 75 percent of the voting interest is owned or controlled by persons who are citizens of the United States or of one of its possessions.” See the following Owner Trust FAQ for an alternative if the entity does not meet this definition.
If an entity does not fit the FAA’s definition of U.S. citizen eligible to register a corporate jet in the U.S., the owner may place the corporate jet in a trust (commonly known as an owner trust) and have the corporate jet registered with the FAA in the name of the trustee (commonly called the owner trustee). The owner trustee holds legal title to the corporate jet. There are several institutions that routinely act as owner trustee for aircraft in the U.S. The aircraft owner will need to select and engage a trustee. The tax department will need to confirm that the trust will be treated as a grantor trust for federal tax purposes. We strongly recommend using a trustee with experience in aircraft owner trusts.
This is also referred to as the Cape Town Registry. It refers to the Convention on International Interests in Mobile Equipment and its Protocol on Matters Specific to Aircraft Equipment – November 16, 2001. The U.S. ratified this treaty and it became effective March 1, 2006. It recognizes the International Registry as an additional place for the filing of interest, including prospective interests, in certain airframes, helicopters, and aircraft engines. When researching the title to a U.S. registered aircraft, at a minimum, have the records checked at both the FAA Registry in Oklahoma City and the International Aircraft Registry (which is based in Ireland).
Yes. The security and confidentiality that some owners desire may be possible with registration in Bermuda, the Cayman Islands, the Bahamas, Aruba or Isle of Man. A non-U.S. registration may also allow owners to take advantage of tax exemptions, relaxed noise restrictions and flexible citizenship requirements.
Not yet. At the time of the closing, you need to file a Declaration of International Operations with the FAA. This should expedite the registration of your aircraft so that the FAA will issue you a “flywire.” The aircraft cannot leave the continental 48 states without either the “flywire” or its permanent registration. The “pink slip” that you placed on the aircraft at closing as temporary registration allows operations only in the continental 48 states. Although not a legal point, you need to check with your pilots and management company as this timing is generally too soon for a new owner to stock an aircraft, obtain all of the authorizations and obtain the aircraft’s Reduced Vertical Separation Minimum (RVSM) certification.
The title report from an escrow agent located in Oklahoma City will generally cover the FAA Registry and may cover the International Aircraft Registry filings. Most title reports do not cover any UCC filings or federal tax liens and may not cover other types of encumbrances (e.g., judgments) that were not filed with the FAA. That said, title insurance is available for aircraft. Historically, it has not been purchased by most aircraft purchasers. If the aircraft being purchased has had a long history, or has questionable prior owners who may have encountered legal or financial problems, the purchaser will want to investigate obtaining title insurance. There are two primary underwriters for aircraft title insurance and several agents in Oklahoma City who offer aircraft title insurance.