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Shared Use as a Solution to Limited Year-End Inventory or Need

Although the global pandemic has recently disrupted business travel, there is no doubt that efficient and flexible air travel is an essential business need. As more entrepreneurs and businesses recognize the benefits of general aviation, the demand for private air travel has increased, including demand for efficient but limited air travel. In addition, as we approach the fourth quarter and the final year of 100% depreciation, many are considering the purchase of a new or used plane. As a result, there is increased demand and limited supply of planes for purchase by year-end 2021. The shared ownership/use of a plane in some form may be a viable solution for many business owners with limited need or faced with limited inventory.

Shared ownership and/or use arrangements has many benefits in that it allows efficient, on-demand travel, while also maintaining significant tax benefits and offsetting the cost of ownership. The benefits are not without great planning, however. Compliance and thoughtful structuring is the key to peace of mind….and absence of reduced tax benefits, penalties and significant legal consequences.

One of the most common shared ownership arrangements is through a fractional ownership program. There are several popular fractional programs that allow the purchase of a percentage of a plane (i.e., 6.25%) and permits the owner to use a plane for a certain number of hours per year (i.e., 50 hours/year). The fractional program will generally manage and maintain the planes in the fractional fleet, and provide the pilot and crew to operate all flights. For the fractional owner, it will have the feel of charter flights, but the tax benefits of full aircraft ownership (deduction of depreciation and operating expenses). Proper structuring is key if you will be using the fractional interest for business. The entity owning the fractional interest can significantly impact tax deductions.

Aircraft co-ownership arrangements are also becoming more and more common. In an example of a common scenario, John Smith and Michael Brown decide to purchase a CJ3 through Airway, LLC. John plans to use the plane to travel with his family to various sporting events and vacation homes. Michael will use the plane 100% for business, however, and is interested in 100% depreciation. They are financing the purchase of the plane, and the lender is requiring the plane to be owned through a single entity. This co-ownership scenario through a single entity can present a problem for co-owners like John who want to use the plane for business and deduct operating expenses as Michael’s use could reduce John’s deductions. This problem can often be avoided with the assistance of knowledgeable tax advisors. If structured properly, both parties will be able to accomplish their objectives even if the plane is owned through a single entity as the lender requires.

Co-ownerships not only require proper structuring for tax purposes, but a clear understanding of how the parties will maintain records, share the use of the plane (scheduling/reservation system), allocate expenses (fixed and variable), pay vendors, and otherwise make plane-related decisions. Ideally, these items should be decided before the plane is purchased and set forth in a written co-owner agreement signed by all co-owners. The more comprehensive the agreement, the lesser the opportunity for disagreements in the future.

Dry leasing is another shared use alternative that has benefits on both sides of the transaction. For example, the owner of a plane may want to offset the cost of ownership by leasing the plane when it is not in use by the owner. A dry lease with one or more lessees can also be a great opportunity to test the waters of co-ownership (or ownership for a potential first-time plane owner). It is far easier to walk away from a lease than to sell an interest in a plane or entity.

If structured properly, the use of the plane by the dry lessee may be fully deductible by the aircraft owner/lessor. The lessee may also be able to deduct its plane rental expenses and operating expenses to the extent the lessee uses the plane for business. Whether owned or leased, proper flight logs must be maintained to deduct expenses, however.

Co-ownership arrangements require compliance with proper structuring and comprehensive co-ownership agreements. Dry leasing, on the other hand, requires more focus on a true shift in operational control. The lessor is providing only the plane, NOT a plane with pilot or crew (unlawful charter flights). In short, the lessee must provide its own pilot and crew and have exclusive possession and operational control of the plane during its lease periods. The FAA has steadily increased enforcement in this area. The key factors considered by the FAA in making the determination of whether the lessee has operational control are:

  1. Who makes the decision to assign crew; accept flight requests; and initiate, conduct, and terminate flights?
  2. For whom do the pilots work as direct employees or agents?
  3. Who is maintaining the plane and where is it maintained?
  4. Prior to departure, who ensures the flight, plane and crew comply with regulations?
  5. Who decides when/where maintenance is accomplished, and who directly pays for maintenance?
  6. Who determines weather/fuel requirements, and who directly pays for the fuel?
  7. Who directly pays for the airport fees, parking/hangar costs, food service, and/or rental cars?

No single factor is controlling. It is best to have a written dry lease agreement in place, and that the lessee be directly responsible for most of the factors above, particularly the selection and direct payment of pilot and crew. The failure to properly dry lease the plane and shift operational control to the lessee can result in significant monetary penalties per flight leg, the plane being grounded, and action against the license of the pilot operating the plane.

The shared ownership or use of a plane may be a viable solution for those with a limited need for private air travel, or faced with limited inventory at year-end. Through proper structuring, documentation, and compliance, you can still accomplish your business needs and tax objectives.

Letisha D. Bivins, Esq. is a Managing Attorney at Advocate Consulting Legal Group, PLLC, which serves the tax, legal, and compliance needs of general aviation clients throughout the country. For more information, visit

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