Own the Jet | Ep. 2: “That bill... would bring back 100% bonus depreciation” - KJ McCarter, Aviation Tax Consultants

In this episode of Own the Jet, we sit down with KJ McCarter of Aviation Tax Consultants to break down one of the most overlooked but most powerful advantages in private jet ownership: tax strategy.

KJ walks us through how 100% bonus depreciation could return under new legislation, what that means for buyers in today’s market, and why working with an aviation-specific CPA is critical even if you already have a great accountant. From maximizing deductions to navigating IRS scrutiny, KJ shares the insights that separate smart acquisitions from costly mistakes.

Whether you're considering your first aircraft or optimizing a growing fleet, this episode is packed with tactical, real-world advice that can save millions and position you for long-term success.

To learn more about aviation tax strategy with KJ McCarter, visit aviationtaxconsultants.com

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There's a bill which is

now through the House.

It is now with the Senate.

That bill, as it's currently drafted,

would bring back 100% bonus depreciation.

Easiest way we can illustrate this is if

a taxpayer goes out and

buys a $10 million aircraft

right now and we have 40% bonus

depreciation, they get to

take a $4 million deduction.

Year one.

Year one.

If this new bill passes, they can

depreciate the full $10

million basis in the plane right

away in year one.

Nice.

So the tax savings is

substantially higher in year one.

Welcome to Own the Jet by Aspen Aero

Group, where we share

perspectives from some of the

leading voices in private jet ownership

and business aviation.

I'm your host, Derek Savage, along with

my co-host, Jason Spoor,

president of Aspen Aero

Group.

Our guest today is KJ McCarter from

Aviation Tax Consultants.

KJ specializes in tax planning for

private jet owners and

companies, helping clients

maximize their deductions

and minimize their liability.

Join us as we dive deep into the

mechanics, mindset, and moments that

define jet ownership.

And together, we'll learn

what it takes to own the jet.

Well thanks for joining us, KJ.

Yeah, absolutely.

Thank you guys for having me.

So can you tell me a little bit about why

somebody would need to reach

out to an aviation-specific

CPA?

I'm playing the role of a rich guy.

I'm going to buy a jet.

I have a CPA.

Why do I need to have

somebody that's aviation-specific?

Excellent question.

And the answer is this area of the tax

code is very nuanced and

specific just to aircraft.

So no matter how good your normal CPA is,

they probably haven't

dealt with any or very

many aircraft before.

So they may not be familiar with, one,

the sales and use tax

planning involved with an

aircraft transaction, but especially the

income tax planning involved with an

aircraft transaction.

Because aircraft are different than

another asset that a

business owner has purchased

in the past.

They can be used for personal use.

So when a business owner buys a

construction crane, that's

relatively straightforward to

account for.

You can't use a

construction crane for fun, right?

Right.

But a plane.

Well, I don't know.

I shouldn't say that.

I'll take on that challenge.

But in aircraft, there's certainly a

personal use element to it.

So it's different than other assets that

CPA may have accounted for.

And that's where our

expertise can be really valuable.

You almost can't have one

just for business, right?

I mean, you've got to

do something with it.

Right.

Yeah.

Almost all of our clients will have some

personal use for the aircraft.

And that's actually a common

misconception or a common

question that we get is, if I

buy this aircraft and I put it in my

business, do I have to fly

100% of the time for business?

Or can I take a

vacation flight with the plane?

Because that's the way

they look at cars, right?

They're just like, hey, how

much of this is business use?

How do you log your miles?

All that stuff.

Yep.

And with the plane,

it's similar to a car.

It can be prorated.

And the IRS actually gives us specific

rules to follow for how

to calculate what should

be deductible and what should not be

deductible based on that

business versus entertainment

use breakdown.

So you absolutely can use the plane for

personal and own it in your business.

What if you're a public company?

Public company, those rules can vary.

So it's important that they

talk to their tax advisors.

We mostly deal with non-public companies

in our practice, but

the rule set is different

there.

What are some things that if I'm owning a

jet, or if I'm

planning on buying a jet, what

are some things that I need to know about

the tax implications of that?

Because we were talking earlier about

some stuff where it's

like, where you do the thing

makes a difference and

timing makes a difference.

There's all kinds of potential landmines

that someone like me

would not know about.

Yep.

Yeah.

So the high level topics to be evaluated

before an aircraft

transaction, and that's a key

point.

This should be done before

you close on the aircraft.

Optimally well ahead of closing, but

closing location matters.

So the aircraft needs to be sitting in a

sales tax friendly

location when closing occurs.

There's a number of states

that can meet that criteria.

But it's on a state by state basis.

State by state basis, correct.

Based on that state's laws.

Yes, based on that state's laws.

There's some states that don't have sales

and use tax, so those can work well.

There's other states that have what we

call a flyway

exemption, meaning you can close

there, pick up the plane and leave.

And because you're not basing the plane

there, using the plane

there, they don't impose sales

tax on that transaction.

There's a lot of states

that have that exemption.

So closing location does matter, but the

more, not important,

but typically a little bit

more involved part of the planning is

called use tax planning.

And that concept is when the plane

returns home to where

it's going to be base hanger

and utilized, that state can impose use

tax on the aircraft.

And use tax is kind of

brother sister with sales tax.

It's that one time upfront tax on the

purchase price of the plane.

So like a California base buyer, for

example, if they bought a

plane and they closed in

Montana, that's great.

Montana doesn't have sales tax, but when

they bring the plane back

to California, California

would like to impose

use tax on the aircraft.

So roughly 10% typically upfront on the

purchase price of the

aircraft, and that can catch

a lot of buyers off guard.

So it's very important that buyers

understand, even if you

close in a sales tax friendly

spot, you still have a use tax obligation

unless you meet some sort of exemption.

What kind of thing would you have to do

to meet an exemption?

Varies widely from state to state.

So California, for example, and this is

unique to California, they

have what we call an interstate

commerce exemption.

It's one of the main exemptions that

taxpayers can potentially

qualify for that involves

utilizing the aircraft for

out of state business use.

Every state is different though.

Texas has its own exemptions.

Florida has its own exemptions.

The most important thing that the buyer

needs to do is connect

with the aviation tax planner

to explain to them, "Hey,

here's the plane I'm buying.

I'm going to base it in this state or

these states if they're

basing it in multiple states

and come up with a game plan."

And this goes back to what

we were discussing about.

The buyer already has their normal CPA,

but their normal CPA

probably doesn't know about

the sales and use tax exemptions for

aircraft in all 50 states.

So that's part of the

value that we can bring.

Jason, you work in the

brokerage of aircraft, of jets.

What are some things that you'd be like,

"Oh, shit, we can't land

here and do business here,"

that you'd want to call KJ

and make sure that that was-

The biggest is the closing.

We want to make sure that the client, the

buyer, is closing

that airplane in a state

that is going to be good for them.

And that's where he comes in to say,

"Okay, looking at their

accounting and how the taxes

work, we would like to close in Montana."

To be clear too, that doesn't mean that

the buyer has to try to

track down a plane that's

currently in a tax-friendly state.

Well, because I know that's what I'm

like, "Okay, if I'm in

Dallas, do I only shop for

planes in Montana now?"

Yeah.

Any planes are in Montana.

Go ahead, KJ, the plane.

Yeah, so the aircraft can be anywhere.

And really, when we're determining where

the aircraft should be

positioned when closing

occurs, we'll actually base that on where

it's going for its

pre-buy inspection typically.

Okay.

So we want to pick the most operationally

convenient spot that

is still tax-friendly.

So let's say the buyer tracks down a

plane that they'd like to

acquire, and it's sitting

in a state that doesn't have an exemption

from sales tax, and the

pre-purchase inspection

is going to occur there as well.

That's fine.

The aircraft just needs to be

repositioned before closing would occur.

Okay, I'm going to test your knowledge.

Oklahoma, good place or bad place?

It depends.

So they have a flyaway exemption, but the

aircraft has to be

above a certain purchase

price in order for that

flyaway exemption to apply.

Okay, lightning round.

Let's keep going.

Michigan.

Michigan has a flyaway exemption.

However, both parties need to be

out-of-state parties.

So its flyaway exemption is a little bit

more limited than other states.

California.

California has a flyaway exemption.

However, one of its requirements is that

the aircraft cannot

come back to California for

12 months following closing.

So generally, we prefer not to use it.

We want to leave that

option open for the taxpayer.

This guy's good.

Yeah, we did a lot of practice.

Do I care as much if I'm selling it?

Do these things affect me?

Good question.

Generally, the obligation for

sales tax falls on the buyer.

So it's not generally

not the seller's problem.

However, in some cases it can be,

especially if the seller

has a dealer's license or a

sales tax account.

Let's say they live in Florida and they

have a Florida sales tax account.

They may have obligation to collect

Florida sales tax from

the buyer when they sell it

to them unless the buyer presents them

with evidence of an exemption.

So sellers do need to be aware of that.

They need to make sure they don't have

some obligation to collect.

If they do collect evidence from the

buyer of a sales tax

exemption being met, but generally

it falls on the buyer.

Gotcha.

Gotcha.

Jason, you had something?

Moving into depreciation.

Yeah.

So exciting news on that front is there's

a bill, which is now through the House.

It is now with the Senate.

That bill, as it's currently drafted,

would bring back 100%

bonus depreciation from January

20th, 2025 through 2029 if purchased

after that date, on or

after that date through

2029, which currently we

have 40% bonus depreciation.

So it's a huge jump.

And why that matters is one, the tax

savings that that provides

in year one for an aircraft

purchaser is far more substantial, 60%

more substantial almost.

So easiest way we can illustrate this is

if a taxpayer goes out

and buys a $10 million

aircraft right now, and we have 40% bonus

depreciation, they

get to take a $4 million

deduction.

Year one.

Year one plus the first

year of five year maker.

So a little bit over 40%.

If this new bill passes, they can

depreciate the full $10

million basis in the plane right

away in year one.

So the tax savings is

substantially higher in year one.

Now Jason, with your business, you talk

about once a plane has

been depreciated, that might

be an impetus to sell.

So what does that mean in terms of the

velocity of people potentially upgrading?

If they can, right.

If they can depreciate the entire thing

year one, and then the

next year they're like,

you know what, we had another good year.

What else is out there?

Yep.

Yeah.

It sounds like to me that this is going

to open up the floodgates

on aviation transactions.

Yeah.

It should incentivize some first time

buyers to come into the

space and get a substantial

tax benefit in 2025, but also it can free

up current aircraft owners to upgrade.

And the reason that it may do that is we

don't have like kind

exchange for aircraft right

now, like we have with real estate.

So when you sell, let's say an aircraft

owner owns a $10 million

aircraft, and they sell

it for $10 million.

They have to recognize, and let's assume

they fully depreciated

the plane, so their base

is in a zero.

They have $10 million of

income from that sale in 2025.

When we have 40% bonus depreciation, when

they go and buy their

next plane, let's say

that's also a $10 million aircraft, and

they take 40% bonus,

they just got a $4 million

deduction, but that cannot fully offset

the $10 million of

ordinary income from the sale,

the previous aircraft.

We have $6 million

leftover is the napkin math.

We have to pay tax on.

That's suboptimal, obviously.

When we get 100% bonus depreciation back,

now we can take the

full $10 million deduction

on the next aircraft in 2025 and offset

the $10 million of

income from the sale of the

previous aircraft, those net out.

That's zero.

You do that in the same year, right?

In the same tax year.

Right.

Okay.

So that's the way the

game is played, apparently.

Nice.

Now there's the way the

bill is written current.

That expires.

So can you talk about that?

Yeah.

As the bill's currently drafted, it's set

to expire at the end of 2029.

Now things may change before this bill is

enacted, before it gets

to the Senate, or they may

change in a couple of years.

There may be a new tax bill, but for now,

that's set to expire in 2029.

I mean, it sounds like there hasn't been

a better time in a little

while to do this outside

of like maybe like

just post COVID, right?

Or everybody was buying and selling.

But this sounds like a good

time to be good at about it.

Yeah, absolutely.

It's certainly not a certainty that this

bill gets through, but

there's a ton of optimism

in our space that 100% bonus in some way,

shape, or form will be back for 2025.

So it's a good climate.

So if I were a shady individual, I'm not

saying I am, but if I

were, and I wanted to avoid

painting taxes altogether, I don't have

to try to do anything shady.

I just have to wait.

Just wait.

Is that kind of what it is?

Yeah, if you want certainty that you can

take 100% bonus in 2025,

if you want 100% certainty,

you would have to wait to acquire until

this bill gets through.

And the latest that I've heard is the

target date to get this

enacted would be July or

August.

But Jason can speak

more to this than I can.

If you wait until September and then you

say, oh, the bill got

through, let's get started

with an aircraft acquisition,

you're very late to the game.

Yeah, probably not going to happen.

It's probably not going to happen in

2025, or at a minimum, it'll be a rush.

So it's important to get started now with

an aircraft

acquisition if you're hoping to

close before the end of 2025.

Is there anything that might go awry with

any of the stuff where, you mentioned all

the potentials here, but what does

somebody's situation have to

be in order to take maximum

advantage of this?

Do they have to have a

bunch of cash on hand?

Do they have to have a

certain asset mix, whatever?

Generally, they need to be a business

owner, and they need to

be able to fly the plane

around for business use in relation to

that business that they own.

Gotcha.

So the slam dunk client fact pattern for

us would be a

construction company or a consulting

company that needs to acquire an aircraft

to fly around and

meet with its clients or

go to its job sites, and it's using the

plane as an internal

business use tool to facilitate

earning its revenues.

So the plane is not a

profit center for them.

They're not leasing it out to their

portfolio of companies.

They're just using the plane as an

internal tool to get around and

facilitate their dealmaking.

So if I own Acme Construction Company,

does Acme Construction

Company own the plane, or

is it plane co owns the plane, and then

the construction company

leases it off of plane?

What does that look like?

I know there's a lot of

shell games that you can play.

Excellent question, and the answer

depends on the sales and

use tax planning involved,

typically.

So from an income tax perspective, if

Acme is using the plane for

its business use, generally,

Acme owning the plane could actually work

from an income tax perspective.

It can be as simple as that.

However, you'll very seldom see that

structure be used in practice.

For a number of reasons, some are not tax

related, but the main

tax one is many times

for sales and use tax planning purposes,

we need a separate

entity to own the aircraft

so that it can serve as the lessor of the

aircraft and lease

the plane from plane co

to the construction company.

The reason why that matters is sales tax

can in some states be

paid on lease revenue rather

than up front on the

purchase price of the plane.

Oh, nice.

So take Indiana, for

example, perfect example.

If you went out and bought a $10 million

aircraft in Indiana,

let's say you didn't work with

the tax advisor at all, you

just went out and bought it.

Indiana would impose

7% use tax on the plane.

So that would be $700,000 tax liability

on a $10 million aircraft.

With proper planning, the aircraft can be

leased from plane co

to construction co in

this example, that 7% can be paid over

time on lease revenue.

Is plane co like in Montana or Delaware?

No, plane co can be in Indiana LLC.

It could be a Montana

LLC or Delaware LLC.

It actually doesn't

really impact what we're doing.

So sometimes our clients will have out of

state LLCs for some

non-tax reason, but for

tax purposes, it can be an Indiana LLC.

That entity will have an

Indiana sales tax account.

So it'll be registered here anyway.

Right.

And how much just napkin math, how much

savings could you expect just by doing

the right paperwork,

having the right timing, consulting with

someone such as yourself,

that would be able to help

understand all of that.

Yeah, generally in Indiana,

it's about a 13 year break even.

Yeah.

So the amount of sales tax you would have

paid on lease revenue

compared to what you

would have paid upfront will

be the same after 13 years.

So about you pay about one 13th of

700,000 per year in

sales tax on lease revenue.

And the real beauty of that in Indiana

and states like Indiana

is if you sell the plane

after four years, for example, then

you've paid for 13th of

what you would have paid

upfront.

Right.

So remaining 9th or 13th stays with you

when you sell the aircraft.

The bottom line from my perspective, what

I'm hearing is if you are

even remotely interested

in owning a jet, you need to have this

stuff figured out prior

to even talking to anybody

about a transaction.

Is that how far in advance do we need to?

Really the earlier the better.

Yeah.

To get started with tax planning and at

least kind of table that.

If all the tax answers are good, then

they can set that aside

and we can revisit three

months out of closing.

But it's good to get those questions

addressed well ahead of closing.

One so we have a game plan in place when

we do find the plane we

want to buy and we can

move quickly.

But also if there's something that would

prohibit them from taking

income tax deductions on

the plane, they probably want to know

that sooner rather than later.

So best to get those

answers as early as possible.

And we're always happy to have

consultations with the

way that our firm works.

We do calls early on in that process.

We don't need to be engaged two years

before we buy a plane or

if we're just exploring

the opportunity to buy a plane.

We have those called all the time.

We wrote kind of an open book with

answering questions so

that buyers know if they can

take deductions on the plane.

Nice.

Nice.

And Jason as a broker, that's something

that's top of mind for you

at all times is like, how

do I make sure that my client is getting

the best transaction?

Right?

Absolutely.

So you would reach out early on in the

conversation with your

client about the next stuff.

Yeah, that and financing.

But steering it back towards the part

135, part 91 world as

far as setup and structure.

What are your thoughts on that

as far as how to go about it?

Yeah.

So from a tax perspective, if it's just

the taxpayer flying

around in their own aircraft,

that flight being operated under part 91

or part 135 won't

change anything from a tax

perspective on the income tax side.

In a few states, there may be some

personal property tax benefits of

operating under part

135.

But generally speaking, it's the same if

it's the taxpayer

flying on their own aircraft.

Now if the aircraft is being leased to a

charter company, for

example, for charter to the public,

that's business use, of course, but

that's treated a little

bit differently than internal

business use by the

taxpayer for their own business.

So certainly if that's a part of the game

plan for the aircraft

purchaser, we need to

discuss that ahead of purchase as well.

And that can open the door to some sales

and use tax exemptions as well.

So companies like QuarterShare, so you

own a quarter of the

airplane, they're paying

tax on that?

Well it kind of

depends on the fact pattern.

But generally speaking, if we go out and

we buy a fractional

interest in an aircraft,

we can derive a similar income tax

benefit to if we bought an

aircraft for the same purchase

price.

So let's say we buy a share for $2

million instead of buying

a $2 million whole aircraft

and we fly at 100% for business, both of

them, then we get the

same depreciation benefit

either way.

The sales and use tax planning involved

typically is, there's less

for a fractional interest

than a whole aircraft ownership.

Makes sense.

Awesome.

So how can people reach out to you if

they are in the process

of like, hey, I really

think I'm ready to start the conversation

of owning a jet and

this is something that

I need to be thinking about potentially

setting up my own plane co or whatever.

Yeah.

Our website is aviation tax consultants.

My email is kj at

aviationtaxconsultants.com.

Reach out any time.

Like I said, we're

happy to hop on a call.

We don't have an hourly

fee or anything like that.

We'll get on the phone.

We'll answer your questions.

If it makes sense to engage

us, we can talk about that.

But we're happy to be a resource.

We'll definitely have you back.

There's like a ton of other questions.

I don't know.

But it's like, I feel like we're abusing

your knowledge at this point.

I'd love to come back anytime.

Awesome.

Awesome.

Well, thank you.

Thank you for watching Own the Jet.

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