Founder & Managing Member
For many high-net-worth individuals in Florida, owning an aircraft outright can feel like overkill—especially if flight hours are modest. Aircraft co-ownership offers a practical and cost-effective way to enjoy the benefits of private aviation while sharing expenses with other owners. But without careful planning, shared ownership can lead to legal disputes, unexpected tax liabilities, and FAA compliance issues. At AVTax Advisors, PLLC, we assist clients in structuring co-ownership arrangements that protect their investments and minimize risk.
Types of Aircraft Co-Ownership Structures
There are several ways to structure shared ownership, each with its own legal and tax implications:
- Tenancy in Common: Each owner holds a specific percentage of the aircraft and can sell or transfer that interest independently. Common in informal arrangements but requires strong contractual controls.
- Joint Tenancy: Owners hold equal shares with rights of survivorship—if one owner dies, their share automatically passes to the other owners.
- Ownership Through an Entity: The aircraft is owned by a legal entity (LLC, corporation, or partnership), and owners hold shares or membership interests in that entity. This is often preferred for liability protection and tax planning.
Choosing the right structure depends on factors such as the number of owners, usage frequency, and the desired level of liability protection.
Essential Elements of a Co-Ownership Agreement
A written co-ownership agreement is critical for preventing misunderstandings. Key provisions should address:
- Ownership Percentages and Capital Contributions: Define each owner’s equity and how initial and future costs will be shared.
- Operating Expenses: Detail how fuel, maintenance, hangar fees, insurance, and crew costs will be divided.
- Scheduling and Usage Allocation: Establish a fair system for reserving flight time and handling peak-demand periods.
- Maintenance Responsibilities: Determine who is responsible for repairs and how the costs are allocated.
- Exit Strategies: Define how an owner can sell their share, how it will be valued, and whether other owners have first-refusal rights.
- Dispute Resolution: Outline methods for resolving conflicts without litigation.
Without these terms, even minor disagreements can escalate quickly—especially when the aircraft is a high-value asset.
Tax Implications of Co-Ownership
Tax treatment varies significantly depending on your structure and how the aircraft is used:
- Depreciation and Deductions: If the aircraft is used for business purposes, owners may be able to deduct their share of depreciation and operating expenses. However, deductions must be allocated based on actual usage, not ownership percentage.
- Entertainment Disallowance: Flights taken for personal reasons can limit deductions, requiring meticulous recordkeeping.
- Federal Excise Tax (FET): If owners charge each other for usage beyond cost-sharing allowances, it may trigger FET obligations beyond permitted joint-ownership or time-sharing allowances under Part 91 Subpart F, which may trigger the §4261 air transportation excise tax (FET).
- Florida Sales and Use Tax: Co-ownership arrangements can trigger Florida’s sales or use tax unless exemptions are documented. This is particularly important when ownership interests are transferred or when the aircraft is primarily based in Florida.
At AVTax Advisors, PLLC, we help clients structure ownership in a way that minimizes unnecessary tax exposure while ensuring compliance with both federal and Florida laws.
Usage Allocation and Scheduling Priorities
The success of a co-ownership arrangement often depends on how flight time is scheduled:
- Rotational Scheduling: Each owner gets priority during certain weeks or months, rotating annually.
- Points-Based System: Owners receive points based on their percentage ownership, which can be “spent” to reserve flights.
- First-Come, First-Served: Simple but potentially contentious without clear rules for special occasions and high-demand periods.
Clear scheduling rules help prevent last-minute conflicts and ensure fairness among owners.
Liability Concerns and Insurance Requirements
Shared ownership means shared liability. If one owner’s flight results in an accident or regulatory violation, all owners can be exposed to legal claims.
- Entity Ownership Advantage: Holding title through an LLC or corporation can help shield personal assets from liability.
- Insurance Coverage: Policies should clearly list all owners, specify permitted pilots, and provide coverage for both business and personal use.
- Additional Liability Policies: High-net-worth owners often carry umbrella policies for added protection.
In Florida, where many aircraft are used seasonally and stored for extended periods, insurance policies must also address non-operation risks, such as hangar damage from hurricanes.
FAA Compliance Considerations
The FAA closely regulates operational control in co-ownership situations:
- Part 91 Eligibility: Most co-owned aircraft operate under Part 91 rules, provided they are not used for commercial carriage.
- Cost-Sharing Limits: Owners can share direct operating expenses proportionate to their usage but must avoid arrangements that resemble commercial charter operations.
- Operational Control: The agreement must clearly establish who is responsible for safety, maintenance, and compliance for each flight.
Failure to comply with FAA rules can result in enforcement actions, including fines or grounding of the aircraft.
Protecting Your Shared Aviation Investment
Aircraft co-ownership can be an innovative and cost-efficient alternative to sole ownership—but only if it’s structured properly. At AVTax Advisors, PLLC, we work with Florida-based owners to design co-ownership agreements that cover all legal, tax, and operational aspects. We ensure your arrangement stands up to FAA scrutiny, maximizes tax efficiency, and reduces liability exposure.
Whether you’re buying into an aircraft for the first time or restructuring an existing co-ownership, our aviation-specific legal and tax guidance keeps your investment—and your flying privileges—secure.
Considering co-ownership? Contact AVTax Advisors, PLLC, today to structure your agreement with confidence and protect your aviation investment.