Private Jets and Tax Deductions: What Real Estate Operators Need to Know

In this episode of the Major League Real Estate Podcast, Nate Sosa and Thomas Castelli break down one of the flashiest tax topics in real estate: deducting private jets. While aircraft ownership can create real tax benefits for syndicators, developers, and business owners, the rules are far more complicated than many people realize. Nate and Tom walk through how depreciation works, why passive activity rules matter, what grouping elections can and cannot do, and why the IRS is paying close attention to this area.

Why Private Jets Are Such a Popular Tax Topic

Nate opens the episode by pointing out why private jets get so much attention from syndicators and developers. They save time, create flexibility, and carry obvious status appeal. But beyond the lifestyle aspect, many business owners get interested when they hear that a private jet may qualify for bonus depreciation.

That combination—utility, prestige, and tax savings—is what makes aircraft ownership so appealing on paper.

How the Tax Deduction Works

At a high level, a private jet is generally treated as five-year property for depreciation purposes. Because of that, it may qualify for bonus depreciation, which can create a very large first-year deduction.

Nate gives a simple example: if someone buys a $1 million aircraft and uses it 100% for qualified business purposes, that could potentially create a $1 million deduction. At a 30% tax rate, that translates into roughly $300,000 of tax savings.

Of course, that only works if the structure and usage actually support it.

The Biggest Misunderstanding: It’s Not Automatically Active

One of the most important points in the episode is that just because a jet is purchased through an LLC and used in a business context does not mean the deductions automatically offset active income.

If the aircraft is leased to a management company or charter operator under a long-term arrangement, the activity may be treated as a rental activity. And rental activities are generally passive by default.

That means the deductions may still exist—but instead of offsetting ordinary business income, they may become passive losses that can only offset passive income or be carried forward.

Why Business Use Matters So Much

Tom emphasizes that actual business use is critical. If the aircraft is used partly for personal trips and partly for business, only the business-use percentage is deductible.

So if the plane is used 70% for business and 30% for personal travel, only 70% of the depreciation and related expenses can generally be claimed. This is similar to the way vehicle deductions work, but on a much larger and more scrutinized scale.

That is why flight logs, trip purposes, passenger lists, and supporting documentation matter so much.

Why the IRS Pays Close Attention to Aircraft Deductions

Nate explains that jets are a known area of abuse in the eyes of the IRS and Congress. Because of that, they receive heightened scrutiny. Aircraft ownership now gets specific reporting attention, and audits in this area can involve extensive documentation requests.

The IRS is not looking at these transactions casually. If someone takes a large deduction for an aircraft, the government wants to know whether the structure, activity, and documentation actually support the position.

The Passive Activity Trap

A major risk is what Nate describes as the passive activity trap. Many owners assume they can buy a jet, lease it to a third party, and immediately use the losses against active business income. But if the structure is passive, those deductions are not as valuable in the current year.

This does not mean the deductions disappear. It means they may be suspended and carried forward until there is passive income or another triggering event that allows them to be used.

That is still valuable—but it is very different from an immediate write-off against ordinary income.

Can Grouping Elections Help?

The episode also covers grouping elections, which may sometimes help if the aircraft activity is sufficiently related to the main operating business. But Nate makes it clear that this is not easy.

The businesses need to be meaningfully connected, the ownership often needs to align, and the facts have to support the idea that the aircraft activity and the business activity operate together as part of the same economic unit.

This is not something operators should assume will work automatically. It requires careful planning and proper documentation from the start.

Structures That Actually Work Better

Nate and Tom explain that there are some structures that work more cleanly than others.

The simplest path is often when the aircraft is directly used in the operating business for legitimate business purposes. In that case, the ownership and activity are easier to support.

A true charter business can also work, but that is a much more involved operation with its own regulatory and operational requirements. It is not something that can just be casually layered on for tax reasons.

The other workable path is simply accepting passive treatment and planning around it accordingly, instead of forcing an active-income strategy that may not hold up.

The Broader Lesson: Don’t Force the Tax Outcome

One of the clearest themes in the episode is that aircraft deductions should be built around real business use, not around a hoped-for tax result.

If the plane genuinely helps the business, saves time, improves operations, and is used appropriately, then the tax benefits can be a real advantage. But if the structure is built mainly to create a deduction, that is where the risk starts to rise quickly.

Final Thoughts

Private jets can absolutely create meaningful tax benefits for real estate operators, but this is not a plug-and-play strategy. The business use has to be real, the ownership structure has to make sense, the passive activity rules have to be respected, and the documentation has to be strong.

For syndicators and developers, the takeaway is simple: aircraft ownership may be a valid tool, but only when the economics and the tax rules line up. Otherwise, what looks like a high-flying deduction can turn into a very expensive audit issue. Interested in working with tax experts? Schedule a discovery call with our firm.

Disclaimer: This podcast summary was generated from the transcript and may contain some errors or miss key points from the audio recording. Any mention of third-party vendors, products, or services does not constitute an endorsement or recommendation. You should conduct your own due diligence before engaging with any vendor.