NBAA Tax Conference Examines the Nuances of Co-Ownership Agreements

Oct. 16, 2023

The 2023 NBAA Tax, Regulatory & Risk Management Conference focused on the numerous, and often contradictory, elements in addressing each of those three facets of business aircraft operations.

Co-ownership can be a cost-effective way to share expenses on a business aircraft while offering easier access and maintaining more control of the asset than in a fractional ownership program. However, such joint ownership agreements can also quickly lead inexperienced parties to run afoul of the FAA, IRS and state tax authorities.

One common method of co-ownership is partnerships by individuals or companies using a special purpose entity, typically a limited liability company or LLC.

“But you have to understand what that means in the terms and conditions of your LLC,” said David Hernandez, aviation specialist with Vedder Price P.C and outgoing chair of the NBAA Tax Committee. “I’ve seen some very sophisticated LLC agreements, and I’ve seen some ‘back-of-the-napkin-in-crayon’ agreements.”

While responsibilities for the aircraft may not be strictly 50/50 between parties, co-owners should generally balance their obligations to not raise regulatory eyebrows under FAR 91.501(c)(3).

“If you come in at 10% ownership of the aircraft and you’re using it 50% of the time, the FAA may determine that’s not really joint ownership, but instead an attempt to provide charter,” said Lori McGee with Jetstream Aviation Law, P.A. “This is one of those areas that’s pretty gray and there are a lot of interpretations out there, but you are taking a risk.”

That may also carry significant tax liabilities on both the federal and state levels, noted business aviation attorney Alvaro Pascotto.

“Co-owners in a TIC (tenancy-in-common) arrangement should be careful not to create an entity … that could be classified as a partnership for federal income tax purposes,” he said. “Each co-owner should also clearly use the aircraft for their own business or personal use, and not in any common business enterprise or similar for-profit venture.”

Similarly, co-owners may face challenges when determining depreciation on the aircraft. “The aircraft is essentially viewed as two different aircraft models [for the purposes of depreciation between two owners],” noted Joe Park with BIZJETCPA.

That said, “one owner’s use can [influence] the other owner’s use,” he continued. “If one owner claims bonus depreciation for using the aircraft 95% for business, the other owner’s use for 95% personal purposes won’t disqualify them from bonus depreciation.”

Navigating such technicalities requires expertise and a deft hand, and Hernandez encouraged owners to reach out to tax experts and their peers for guidance. “When in doubt, ask someone,” Hernandez emphasized. “Don’t Google it or ask ChatGPT.”

The 2023 NBAA Tax, Regulatory and Risk takes place Oct. 15-16 ahead of the 2023 NBAA Business Aviation Convention & Exhibition (NBAA-BACE),

View NBAA’s tax resources.