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Should you hold your aircraft in an LLC or a trust? Both provide a legal layer between you and personal liability, but the scope of liability protection differs and depends on state law. Additionally, the IRS treats them very differently. Trusts are barred from the Section 179 deduction. The IRS Form 4562 instructions state it plainly: “An estate or trust cannot make this election.” LLCs pass deductions through to their members. Passive activity and hobby loss rules apply to both, but your ability to work through them differs by structure. A Florida aviation tax attorney can evaluate the trade-offs specific to your aircraft and your tax situation.
The Entity You Choose Can Make or Break Your Deductions
Here is how the two structures compare across the most consequential tax dimensions:
| Tax Dimension | LLC | Trust |
| Section 179 deduction (up to $2,500,000 for 2025) | Available; passes through to members | Prohibited |
| Bonus depreciation, IRC §168(k), 100% restored | Available | Available |
| Passive activity loss rules, IRC §469 | Applies; grouping election available | Applies; material participation harder to establish |
| Hobby loss rule, IRC §183 | Applies | Applies (under analogous tax principles) |
| Estate and probate benefits | None | Probate avoidance; FAA privacy options |
What Is the Key Tax Rule That Separates an LLC from a Trust?
When it comes to deducting your aircraft as a business asset, no distinction matters more than this: trusts cannot make the Section 179 election. Why trusts are barred from the Section 179 deduction comes down to a rule with no exceptions. The IRS Form 4562 instructions state it plainly: “An estate or trust cannot make this election.”
Section 179 allows a business to immediately expense qualified property rather than depreciating it over years. For 2025, the maximum deduction is $2,500,000. An LLC taxed as a partnership or S corporation passes this deduction through to its members, who can apply it against their taxable income, subject to qualified business use requirements. A trust holding the same aircraft receives no equivalent benefit.
If how depreciation works for Florida aircraft owners is central to your ownership plan, entity selection is the first variable to get right.
Where Do LLCs and Trusts Face the Same IRS Tests?
Choosing an LLC does not automatically unlock your aircraft deductions. Both LLCs and trusts must clear two IRS tests: the profit motive standard and the passive activity loss rules.
Under the profit motive standard for aircraft deductions, IRC §183 (the hobby loss rule) limits deductions for activities not engaged in for profit and applies to individuals, partnerships, S corporations, trusts, and estates, but not C corporations. For an aircraft activity lacking a genuine profit motive, §183 can cap deductions (including depreciation) at the activity’s gross income, whether the aircraft is held in an LLC or a trust.
For trusts and estates, §183 and its regulations directly govern aircraft activities that lack a profit motive, capping deductions at activity gross income in the same way they do for individuals and passthroughs. Aircraft activities must demonstrate a genuine profit motive or deductions risk being capped at activity income. With most privately owned aircraft generating more costs than revenue, the profit motive challenge is real for every aircraft owner, regardless of entity type.
How passive activity rules affect aircraft owners under IRC §469 presents a second challenge that applies expressly to individuals, estates, and trusts. If your LLC leases the aircraft to your operating business, the aircraft activity may be classified as passive, suspending all losses until the aircraft is sold or passive income becomes available. Trusts face the same restriction. Establishing material participation is harder for trusts: it requires the fiduciary to be actively and regularly involved in aircraft operations, a standard that is difficult to meet in practice.
Taxpayers subject to IRC §469, including individuals, estates, and nongrantor trusts, may use the Reg. §1.469‑4 grouping rules to combine related trade or business and rental activities into a single activity when they form an “appropriate economic unit.” Proper grouping can help align aircraft leasing with a related operating business for material‑participation purposes, but the election is available to nongrantor trusts and estates as well as LLC owners.
Review the tax risks of leasing your aircraft to a related business before proceeding with any related-party lease arrangement.
How Does Bonus Depreciation Work for Aircraft After the OBBBA?
The One Big Beautiful Bill Act restored 100% bonus depreciation under IRC §168(k) for qualified property placed in service after January 19, 2025, including aircraft. Both LLCs and trusts can access this provision, a meaningful point of parity with Section 179.
Business aircraft used domestically and not in common or contract carriage depreciate over five years under MACRS. Aircraft in Part 135 service use a seven-year schedule. How business aircraft depreciate under each depreciation schedule is worth reviewing when modeling both structures.
The condition that applies to every entity type, every year is that the aircraft must be used more than 50% for qualified business purposes under the listed property rules of IRC §280F. Drop below that threshold and depreciation recapture applies, pulling prior deductions back as ordinary income. Documentation of business use is what protects the deduction. Structure alone does not.
When Does Holding an Aircraft in a Trust Make Sense?
A trust provides no income tax advantage for aircraft ownership. What it does provide is estate planning value. An aircraft held in a revocable living trust avoids probate at the owner’s death. In Florida, a high-value aircraft held personally can trigger a full probate proceeding even when all other assets are already in trust, a result most owners do not anticipate.
FAA citizenship rules require that a U.S.‑registered aircraft be owned by a U.S. citizen. Many non‑U.S. beneficial owners use owner trusts (often Delaware Statutory Trusts) with a U.S.‑citizen trustee to hold legal title. This keeps the trustee’s name on the public registration while beneficial ownership is documented in trust instruments and FAA filings, providing enhanced privacy and regulatory compliance rather than complete anonymity.
Some owners use both. They use an LLC for active tax management during their lifetime and a trust-based structure for ownership transfer at death. Which ownership structure fits your full picture depends on your tax position, estate goals, and how you use the aircraft.
What Should Florida Aircraft Owners Know About State Tax?
Florida imposes a 6% sales and use tax on aircraft purchases. Entity structure can affect that exposure. Transferring LLC membership interests may avoid a direct sales tax trigger in certain circumstances, while an outright asset sale generally does not. The fly-away exemption (which allows a nonresident buyer to remove an aircraft from Florida within 10 days of purchase) remains available regardless of entity type. Aviation fuel became tax-exempt in Florida effective January 1, 2026, from state sales and use tax, while remaining subject to the state pollutants tax where applicable.
With expanded IRS scrutiny of corporate aircraft since the agency’s February 2024 announcement, aircraft owners should treat structure, documentation, and flight log maintenance as equally essential components of a defensible tax position.
Work With a Florida Aviation Tax Attorney Who Knows the Code
The entity holding your aircraft determines every deduction you can take and every one you cannot. AvTax Advisors, PLLC provides aviation tax planning for Florida aircraft owners and clients nationwide, with structuring guidance grounded in the tax code. Contact AvTax Advisors to build an aircraft ownership structure that holds up under IRS scrutiny from day one.