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When high-net-worth individuals invest in private aircraft, flexibility and tax efficiency are often top priorities. Two popular options for shared aircraft usage—dry leases and time share agreements—offer distinct benefits but also come with unique legal and tax implications. Misunderstanding the differences can lead to FAA compliance violations or costly tax audits. At AVTax Advisors, PLLC, we help Florida-based aircraft owners navigate these complex arrangements with confidence.
What Is a Dry Lease?
A dry lease is an arrangement where the aircraft owner leases the aircraft to another party without providing a flight crew. The lessee is responsible for hiring pilots and managing operations throughout the duration of the lease term.
Key Features:
- Aircraft only—no crew included
- Typically operated under Part 91 (non-commercial)
- The lessee assumes operational control during the lease term
- Must meet FAA “truth-in-leasing” requirements for leases over 30 days
Legal Considerations:
Dry leases are legal and common among businesses and individuals, but improper structuring—such as combining them with pilot services—can unintentionally create a Part 135 commercial operation, triggering FAA enforcement.
Tax Implications:
- Dry lease payments are generally not subject to Federal Excise Tax (FET) if the aircraft is operated under Part 91.
- Lessees may deduct lease payments as a business expense if the aircraft is used for qualified business travel.
- For Florida-based aircraft, sales and use tax can apply unless exemptions are properly documented.
What Is a Time Share Agreement?
A time share agreement, as defined under FAR 91.501, allows an aircraft owner to provide both the aircraft and the crew to another party, typically on a cost-reimbursement basis.
Key Features:
- The owner supplies aircraft and crew
- The lessee reimburses the owner for operating costs plus 100% of fuel and limited other expenses
- Strictly governed by FAR 91.501(d)
- Limited to non-commercial use among qualifying parties
Legal Considerations:
Time share agreements are subject to FAA operating limitations. While not considered commercial operations under FAA rules, timeshares blur the lines and often invite scrutiny. The lessee may not exert full control over the flight, which can raise liability concerns.
Tax Implications:
- The Federal Excise Tax generally applies to timeshare payments due to the presence of crew and reimbursement structure.
- Aircraft owners must collect and remit FET to the IRS or risk penalties.
- In Florida, timeshare agreements may trigger use tax if the aircraft is based or used within the state. Exemptions are available but must be clearly documented with logs and contractual language.
FAA Compliance Issues: Avoiding Unintentional Part 135 Operations
The FAA is highly focused on so-called “sham dry leases” and improperly structured timeshare arrangements. Key red flags include:
- Bundling dry leases with pilot services through the same provider
- Lack of clarity around operational control
- Inadequate recordkeeping or aircraft logs
- Failing to register dry lease agreements with the FAA for leases over 60 days
Violations can result in civil penalties, license suspensions, or the grounding of aircraft. At AVTax Advisors, PLLC, we assist clients in drafting compliant lease and timeshare agreements that withstand FAA scrutiny while maintaining operational flexibility.
Tax Differences at a Glance
The tax treatment of dry leases and time share agreements varies significantly, and misunderstanding these differences can lead to costly consequences. Here’s how they compare:
- Federal Excise Tax (FET): Dry leases generally do not trigger FET, as they involve leasing only the aircraft, not the crew. In contrast, timeshare agreements typically do trigger FET, since the owner provides both the aircraft and crew and receives reimbursement for costs.
- FAA Operating Rules: Both dry leases and timeshares can be conducted under Part 91 rules, but timeshares must meet the stricter conditions outlined in FAR 91.501. Dry leases must also comply with FAA “truth-in-leasing” rules for leases exceeding 30 days.
- Florida Use Tax Exposure: Both structures may expose aircraft owners to Florida sales or use tax, depending on how and where the aircraft is used. Dry leases often raise questions about who is considered the true “user” for tax purposes, while time shares require thorough documentation to support exemption claims.
- Audit Risk: Improperly structured dry leases—especially those that include pilot services—can raise red flags during IRS or FAA audits. Similarly, time share agreements often face scrutiny if the owner fails to collect and remit FET or misreports reimbursement amounts.
- Business Deductions: Lessees under a dry lease may be eligible to deduct lease payments as a business expense, provided the aircraft is used for qualifying business travel. For time shares, deductions may be more limited and subject to entertainment expense restrictions under federal tax law.
These differences underscore the importance of carefully structuring your aircraft usage agreements with the guidance of aviation-savvy tax counsel. At AVTax Advisors, PLLC, we help Florida-based aircraft owners avoid the most common tax pitfalls and stay compliant across all levels of taxation.
Common Pitfalls and Misconceptions
- Assuming dry leases can include crew: Doing so shifts the operation toward Part 135, requiring special certification.
- Failing to collect FET on time share payments: This is a frequent IRS audit issue and can result in interest and penalties.
- Thinking Part 91 means tax-exempt: Part 91 operation doesn’t exempt aircraft from Florida’s use tax or federal rules on depreciation and deduction substantiation.
- Copying agreement templates: Generic lease templates often fail to address aviation-specific regulatory or tax nuances, especially for Florida-based aircraft.
Get Experienced Guidance from Florida’s Aviation Tax Law Firm
Whether you’re leasing your aircraft or sharing its use, properly structuring your dry lease or time share agreement is essential to avoiding legal headaches and protecting your tax position. At AVTax Advisors, PLLC, we represent aircraft owners across Florida with services tailored to the unique challenges of aviation law and tax planning.
We don’t just review your agreements—we help you design them to stand up to IRS audits, FAA scrutiny, and state tax inquiries. From initial drafting to defending your arrangements during audits, our aviation-focused legal counsel ensures your aircraft stays in the skies, not tied up in red tape.
Considering a dry lease or time share agreement? Contact AVTax Advisors, PLLC, today to protect your aircraft investment with smart, compliant legal planning.