Founder & Managing Member
Owning a private aircraft offers unmatched flexibility and convenience—but it also comes with complex tax rules. One of the most misunderstood is the personal use disallowance. At AVTax Advisors, PLLC, we help Florida-based aircraft owners understand how this rule works, how to stay compliant, and how to avoid costly IRS disputes.
What Is Personal Use Disallowance?
In simple terms, personal use disallowance refers to the reduction or elimination of certain tax deductions when a business-owned aircraft is used for personal travel. Even if a business entity owns an aircraft, the IRS limits the deductibility of expenses associated with non-business flights, particularly when those flights are for entertainment purposes or benefit company executives, shareholders, or family members.
Personal use doesn’t just mean vacations—it can include any travel that isn’t directly related to generating business income.
Why It Matters for Florida Aircraft Owners
Many Florida-based high-net-worth individuals use their aircraft for both business and personal reasons. Without careful planning and documentation, these mixed-use flights can trigger disallowed deductions, additional taxable income, and increased audit risk. The IRS pays close attention to aircraft-related deductions because they often involve high-value assets and substantial expenses.
Record-Keeping Requirements
To determine whether a flight is personal or business-related, the IRS relies heavily on your documentation. Proper recordkeeping is essential.
What You Should Track:
- Date of the flight
- Departure and arrival locations
- Names of passengers
- Business purpose for each passenger
- Flight hours and mileage
- Operational costs associated with the trip
Using detailed flight logs, supported by passenger itineraries and meeting records, provides the evidence needed to substantiate business use claims. Incomplete or vague records are one of the fastest ways to lose deductions in an audit.
Tax Consequences of Personal Use Disallowance
In aircraft tax rules, the formal deduction limit applies to entertainment use of a business aircraft under §274-10. Personal travel that isn’t entertainment may still require imputed income (valued by SIFL or FMV), but it isn’t automatically disallowed under §274-10. The impact of personal use disallowance can be significant:
Loss of Depreciation Deductions
If the aircraft fails the “predominant business use” test (more than 50% business use), you may lose the ability to claim accelerated depreciation under IRS rules.
Disallowed Operating Expenses
For entertainment flights, the IRS can disallow both fixed and variable aircraft expenses (fuel, hangar, crew, depreciation, etc.).
Imputed Income
When executives or shareholders use the aircraft for personal purposes, the value of that use may be considered taxable income to them. This is often calculated using Standard Industry Fare Level (SIFL) rates or fair market charter rates.
Entertainment Disallowance Rules
Expenses related to entertainment flights for non-employees are generally non-deductible, even if there’s some incidental business purpose. For non-employees who aren’t specified individuals, deductions may still be allowed if the expense is properly included in the recipient’s income; different limits apply to specified individuals (officers, directors, >10% owners).
Common Scenarios That Trigger Disallowance
- Executive Family Vacations: The CEO flies family members to a vacation destination on the company jet.
- Mixed-Use Trips: A trip includes a legitimate business meeting but is extended for leisure purposes, incurring extra costs unrelated to business.
- Spousal Travel: Spousal travel is generally non-deductible unless the spouse is an employee, has a bona fide business purpose, and the expense would otherwise be deductible to the spouse.
- Board Member Perks: Company board members are flown to events that are primarily social or recreational.
In each of these cases, the IRS may reclassify all or part of the trip as personal use, reducing or eliminating the associated deductions.
Pitfalls to Avoid
- Failing to Segregate Personal and Business Costs: Mixing expenses makes it difficult to defend deductions during an audit.
- Overestimating Business Purpose: Simply talking about business during a trip doesn’t make it deductible.
- Not Adjusting for Deadhead Flights: Positioning flights for personal trips can still be considered personal use.
- Inconsistent Reporting: Discrepancies between corporate tax returns and executive W-2 reporting can raise red flags.
Practical Tips for Compliance
- Maintain Comprehensive Logs: Use software or apps designed for aviation recordkeeping to ensure accuracy.
- Train Your Flight Department: Ensure pilots and schedulers understand the importance of tracking passenger details and trip purposes.
- Establish Written Policies: Have a clear corporate policy that defines business versus personal use, consistent with IRS rules.
- Review Usage Regularly: Conduct quarterly or annual reviews of flight logs to ensure the aircraft meets business-use thresholds.
- Work with Aviation-Specific Tax Counsel: General tax advisors may overlook key aviation rules. Specific guidance helps protect your deductions and compliance.
How AVTax Advisors, PLLC Can Help
At AVTax Advisors, PLLC, we provide Florida aircraft owners with tailored strategies to manage the risks associated with personal use disallowance. From structuring ownership entities to designing compliance systems and defending against IRS audits, our aviation-focused legal team ensures you maximize allowable deductions while staying within the law.
We understand the high stakes involved when an aircraft is part of your business and personal life. Our goal is to keep you in the air—and out of trouble—with the FAA, IRS, and Florida Department of Revenue.
Own an aircraft and want to safeguard your deductions? Contact AVTax Advisors, PLLC today for a confidential consultation and get clarity on personal use rules before the IRS comes calling.