This and other key tax strategies every buyer should understand before closing on an aircraft.
Minnesota is one of the most tax-friendly states for aircraft delivery, often referred to as a “fly-away” state. Coordinating your aircraft closing and delivery at Elliott Aviation’s Flying Cloud (FCM) facility can significantly reduce or eliminate sales tax due at the time of purchase. Many owners use this advantage to structure their purchase in a tax-favorable way, maximizing efficiency from day one. While buyers should always plan for potential “use tax” when bringing the aircraft to its home state, taking delivery in Minnesota provides a proven opportunity to minimize upfront costs and protect your investment.
To learn more about the tax advantages of purchasing and delivering your aircraft in a sales tax-friendly state, check out this detailed overview from Aviation Tax Consultants
Aircraft Tax Planning Benefits
Purchasing an aircraft is a significant investment, and proactive tax planning before closing is critical to minimizing state sales taxes and maximizing federal income tax benefits. Once the transaction is closed, opportunities to structure the purchase efficiently are limited:
Key Tax Considerations:
Sales and Use Tax Exposure:
State taxes on aircraft purchases can be as high as 10+% of the purchase price. However, with proper tax planning, the purchaser can often defer this liability or even eliminate it. Sales and use tax planning opportunities vary depending on the state(s) where the aircraft will be domiciled.
Sales / Use Tax Mitigation Opportunities Include:
- Coordinating Delivery in a Tax-Favorable State
- Closing in a sales tax friendly state can reduce or eliminate sales tax due at the time of closing. Many states have a cap on sales tax, no sales tax or a fly-away exemption allowing the purchaser to avoid the upfront sales tax due. Please note that the purchaser will need to consider “Use Tax” when the aircraft is brought home after taking delivery (even if you close in a sales tax friendly state).
- Leveraging State Specific Use Tax Exemptions for the State the Aircraft is Domiciled
- Indiana Purchase for Resale Exemption, Texas Out-of-Sate Departure Exemption and California Interstate Commerce Exemptions are just a few examples of state specific sales and use tax mitigation opportunities. Please reach out to Aviation Tax Consultants to discuss which exemption could be a good fit.
Income Tax Planning:
Purchasing a business aircraft can generate tremendous income tax savings. This year Congress passed legislation known as the “One Big Beautiful Bill” restoring full 100% bonus depreciation. Under the new law, taxpayers can once again fully expense 100% of the cost of qualified aircraft in the first year of service, eliminating phased depreciation deductions and accelerating tax savings. This benefit applies to both new and pre-owned aircraft, provided they meet business-use requirements and other requirements outlined in the Internal Revenue Code. The aircraft must be “placed in service” during the tax year for which you claim the deduction, meaning the aircraft is ready and available for business flights.
The legislation also increases Section 179 Expensing to $2.5M for 2025. This provision provides taxpayers with another option to accelerate tax depreciation of a business aircraft when 100% bonus may not be desirable. The Section 179 provision would apply to aircraft up to $6.5M.
The following table illustrates the amount of tax depreciation and potential income tax savings generated from the purchase of a $10 million aircraft with a 2025 delivery date, based on 100% business use in 2025, and FAA Part 91 operator:
| Tax Year | 2025 |
| Percentage of Purchase Price Depreciated | 100% |
| Potential Tax Deductions from Depreciation | $10,000,000 |
| Potential Income Tax Savings from Depreciation ** | $4,000,000 |
** Based on 40% combined marginal federal and state income tax rates.
There is currently no phase out for 100% Bonus Depreciation, meaning it is available until a new law is enacted. If you are unable to close on the aircraft in 2025, you are still able to leverage 100% Bonus in 2026 and beyond, the deduction will just be applied to the year in which you purchase the aircraft.
Please reach out to Aviation Tax Consultants to discuss your specific facts and goals, our team will assist you, your CPAs and attorneys in tax planning and provide an optimized tax approach for your aircraft acquisition.
Year-End Aircraft Closing Checklist
Purchasing an aircraft before year-end can provide significant income tax benefits for many taxpayers. If you have an aircraft closing planned before the end of the year (congratulations!), please review the following to ensure no tax deductions are inadvertently lost.
- Legal title needs to be with the new ownership entity. The bill of sale should be signed, dated, and filed with the Federal Aviation Administration. The aircraft has to be placed in service.
- While an actual flight is not necessary before year-end, the plane must be, at a minimum, available to the taxpayer for its intended use – flying business missions. If weather conditions do not allow a flight to be taken, it does not change the fact that the plane is available to be flown. However, if the plane is in the factory for assembly and does not have an airworthiness certificate, it will not be considered placed in service for this tax year even if you have the legal title of the aircraft.
- Personal use. Due to the number of days remaining until the end of the year, personal use of a newly acquired business aircraft during this period must be closely monitored. For instance, personal flights are often taken over the holiday to visit family, and a business flight is planned for the last week of the year to offset the personal use. However, if bad weather or maintenance issues prohibit the business flight to be taken, the IRS can take the position that for tax year 2025, the aircraft is a personal asset, and no deductions are allowed until 2026 when business use is properly documented.
- Sales and use tax. Both the delivery location of an aircraft and the home base of the aircraft can trigger sales and use tax liabilities in these states. Careful review of local statutes and planning are of utmost importance to legally minimize or eliminate these tax liabilities. Please be aware that using a Delaware entity and taking delivery outside your home state will NOT allow you to escape the tax.
- 100% Bonus Depreciation. If you are planning to make an aircraft purchase in 2025 and are motivated by bonus depreciation, careful planning of the ownership structure, maintaining adequate business use, and proper recordkeeping are vital to capture the deduction.
Aviation Tax Consultants (ATC) assists aircraft purchasers in acquiring aircraft in a tax-efficient manner. Our services include the elimination or reduction of sales tax at the time of purchase, maximizing income tax savings, controlling the cost of personal use of the aircraft, avoiding passive activity loss rules, and complying with Federal Aviation Regulations. Cooperation with the client’s current tax and legal advisors is welcome and encouraged.
