Buying an Aircraft Through an LLC: Benefits, Risks, and Ownership Structure

Using an LLC to purchase an aircraft can come with significant tax benefits, and it can protect your valuable assets if something goes wrong during a flight. 

However, to use this strategy safely, you must set up your LLC properly and document each flight carefully. 

In this guide, we’ll break down the advantages of using an LLC for your aircraft purchase, so you can determine if this is the right path for you. Remember that Element Aviation is here to guide your private aircraft purchase, no matter how it’s completed.

What Does It Mean to Own an Aircraft Through an LLC?

A limited liability company (LLC) is a legal entity that’s separate from you as an individual. In the eyes of the Federal Aviation Administration (FAA), the LLC is the registered owner of the aircraft. The LLC enters into contracts, pays for maintenance, and holds insurance policies. 

You’ll set up your LLC through filing formal articles of organization and an operating agreement. You’ll also set up pass-through taxation plans, ensuring that income or losses are recorded on your tax returns. 

The foundational element of an LLC is the ownership structure.

Two versions are available:

• 1. A member-managed structure ensures owners handle daily flight operations.
• 2. A manager-based structure involves a professional flight management company responsible for coordinating maintenance, scheduliing, and administrative management.

Setting up an LLC can be complicated, and it’s wise to consult with legal counsel to begin. But once it’s incorporated, it can run without much maintenance for the length of the aircraft’s useful life.

Why Aircraft Owners Use LLC Structures 

Several key benefits come with LLCs, making it a popular choice for people who purchase valuable items. 

Liability Protection

Expensive, moving objects like aircraft and yachts come with significant legal liabilities, and if they’re tied to personal accounts, an accident can be devastating. An LLC provides a key layer of protection. 

For example, if your aircraft experiences a malfunction on the runway, it could hit another jet. The liability for that accident could rest with you whereas an LLC protects your assets.

Tax Planning Benefits 

Several tax benefits come through using an LLC. 

Typically, an LLC is designated as a pass-through entity, so any losses or depreciation associated with the aircraft are recorded on your personal tax returns. You can use those figures to offset other business income. 

Bonus depreciation rules mean an owner can deduct a large percentage of the aircraft’s cost in the first year it’s placed into service, rather than spreading the deduction over several years. 

For example, a person expects to report $5 million in taxable income. That person purchases a pre-owned jet for $3 million through a new LLC, offsetting the high amount owed in taxes. 

Privacy & Ownership Discretion 

Individuals with high net worth may choose an LLC for security reasons. They may not want their name associated with their travel or location. An LLC allows the entity to own the jet, not the individuals, preserving their privacy.

Potential Tax Advantages of Aircraft LLC Ownership

Using an LLC allows you to aircraft as a business asset rather than a purely personal-use asset.

This shift allows you to take several key deductions that can significantly lower the cost of ownership, including:

• Depreciation deductions: If the aircraft is used for business purposes more than 50% of the time, the LLC can take an immediate deduction of a large portion of the purchase price in the first year it’s placed into service. 
• Operating expenses: The day-to-day costs involved with flight become deductible business expenses.
• Sales tax planning: Many owners use LLCs to structure ownership and registration in accordance with applicable state tax laws.

Potential Drawbacks of LLC Ownership

While LLCs can provide significant benefits, there are considerable risks to manage and avoid. 

The FAA monitors LLCs, looking for those that exist solely to own an aircraft. If the LLC provides transportation services to the owner in exchange for any type of compensation without a commercial certificate, it could be cited as an illegal charter. 

An LLC can avoid this by creating a time-sharing agreement specifically designed to comply with FAA regulations. 

You must also be careful to keep your LLC separate from your personal accounts. That means maintaining distinct bank accounts, filing annual reports, and keeping detailed flight logs. Hiring a third-party management company can help with this. 

You may also need a certified public accountant to step in and assist with taxes. If you take large depreciation deductions and sell the aircraft for more than its depreciated book value, you could face tax recapture, where your savings are taxed as ordinary income. 

Aircraft Ownership Structures Compared 

Which ownership structure is right for you? This chart can help you compare your options.

ownership type	advantages	drawbacks
Individual Ownership	*Simplicity: No corporate filings, annual reports, or entity maintenance fees. *Direct Control: Simplest path for personal, non-business flying under FAA Part 91. *Lower Admin Costs: No need for specialized entity accounting or separate bank accounts.	*Unlimited Liability: Personal assets (home, savings) are exposed to legal claims if an accident occurs. *Limited Tax Benefits: Harder to justify business depreciation or expense deductions. *Lack of Privacy: Name and address appear directly in the public FAA Civil Aviation Registry.
LLC Ownership	* Asset protection: Creates a legal “shield” between the aircraft’s liabilities and the owner’s personal wealth. * Tax flexibility: Offers “pass-through” taxation; benefits like bonus depreciation flow directly to members. * Privacy: The entity name appears on the registration rather than the individual’s name.	* Regulatory scrutiny: Risk of the “Flight Department Company” trap if the LLC has no other business purpose. * Administrative burden: Requires formal operating agreements, separate books, and state filings. * Cost: Initial formation fees and ongoing costs for specialized aviation tax preparation.
Corporate Ownership	* Established structure: Ideal for large organizations with existing flight departments and multiple users. * Clear compliance: Typically easier to integrate into existing Part 91 or Part 135 commercial operations. * Capital access: Can be easier to secure financing or manage shared ownership among shareholders.	* Double taxation: Potential for tax at both the corporate and individual levels (unless structured as an S-Corp). * Rigid formalities: Subject to stricter corporate governance, board resolutions, and oversight requirements. * High complexity: Often requires dedicated legal counsel to manage “fringe benefit” tax reporting for personal use by executives.

Contact Us to Get Started

Element Aviation has decades of experience and can help you navigate the complexities involved with buying an aircraft. We’ll be with you from start to finish, ensuring this process moves as smoothly as possible. Contact us today.