The best way to determine how to structure aircraft ownership is between you and your financial professional, whether that's a CPA, a tax attorney, or a financial planner.
Many lenders are flexible when it comes to the structure you choose for registration, whether it’s a single purpose LLC, an operating company, or an individual. For some aircraft owners, there are benefits to registering their aircraft through a company, including depreciation; interest expense; preservation of capital, and the time savings associated with private aircraft operations.
Generally speaking, depreciating the aircraft as an asset through your company can be a major advantage. A popular strategy for business owners purchasing an aircraft is to use an accelerated depreciation schedule. This strategy often involves securing a shorter-term loan with a longer amortization period, for instance, a 5- or 7-year term, ending with a balloon payment, and a 10- to 15-year amortization. Using the accelerated depreciation schedule, all the available depreciation on the aircraft can be taken within the first 5-7 years of ownership.
This strategy offers two advantages. The first is that the monthly payment calculated over the 10- to 15-year amortization will remain relatively low, reducing direct operating expenses proportionally. By the time you get to that 5- or 7-year decision point in the loan term, the benefit of depreciation on the aircraft has already been realized. Most business owners then sell that aircraft and buy another one to continue the depreciation advantage cycle with the next aircraft.
The second advantage is the potential to reduce your taxable income by the amount of interest paid on your loan. Financing uses only a small portion of your capital upfront on the down payment, while the remaining funds that could have been used to pay for the aircraft are left in the business and available for reinvestment.
Financing necessarily involves an interest payment, which you may be able to deduct as an interest expense. Remember, only your tax adviser can ascertain the capabilities for your specific situation.
Last but not least, are the dual benefits of owning your time and ease of travel. A TBM 900, for instance, will easily cruise in the flight levels, giving you some excellent cruising speeds, and saving significant flying time. It will also allow you to land at smaller airports closer to your clients or work locations. By traveling to those smaller airports, closer to where your people are, you’re able to do more in one trip, saving time and money.
There may be some disadvantages to owning an airplane through a company, depending on the type of company you own and operate. If it's an operating company, there may be some lenders that are uncomfortable financing an aircraft that is going to be used as a business tool. The advantage of using AOPA Aviation Finance is that we can filter through some of those lenders and find a good lending option for your company’s situation.
Sadly, you may be in a situation where none of these benefits apply. For instance, maybe there isn't an advantage to taking depreciation upfront because your company structure doesn’t allow for the purchase of an aircraft. In that case, registering an aircraft individually might be a better option.
Also, if you buy an aircraft through your business, the business owns that aircraft. Should anything happen to the business—from a lawsuit to insolvency—your aircraft will be affected as well. In a worst-case scenario, a plaintiff going after all your assets could force you to sell the aircraft in bankruptcy court.
A desire to use the aircraft for a mix of business and pleasure may complicate the ownership structure. That complication may disincentivize you from owning the aircraft through your company. Again, AAF defers to your CPA and other legal professionals to determine what is best for your specific situation.
Finally, regardless of whether the aircraft is registered to you as an individual or through your company, most lenders will require a personal guarantor on the loan. The owner or operator of the business is typically the one sought after for a personal guaranty, which may even hold true for a C corporation or a publicly traded company.
Great advice. Great rates. Helpful and responsive reps you can trust. Three good reasons to turn to AOPA Aviation Finance when you are buying or refinancing an airplane. If you need a dependable source of financing with people who are on your side, just call 800.62.PLANE (800.627.5263), or click here to request a quote.
