How to handle aircraft depreciation for tax purposes when leasing to a charter company?

Aircraft depreciation is a complex area of tax law, but I can help clarify some points. The key issue is whether this will be considered a passive activity or an active business. For the IRS to consider your aircraft leasing as active income, you generally need to demonstrate "material participation" - meaning you're involved in operations regularly, continuously, and substantially. This typically requires 500+ hours annually devoted to the activity, or meeting other specific tests defined by the IRS. Simply owning the aircraft and collecting lease payments would almost certainly be classified as passive. However, if you're actively involved in management decisions, marketing, client development, or operations beyond just occasional use, you may have a stronger case for active income classification. You might want to consider establishing a formal business entity for this venture and documenting all time spent on activities related to the aircraft business. Also, having a written business plan showing profit motive beyond tax benefits is crucial.

After dealing with similar depreciation questions for my real estate investments, I discovered https://taxr.ai and it was a game-changer for my situation. I uploaded my aircraft purchase documents and operating agreements, and their AI analyzed everything and provided specific guidance on how to structure the arrangement to maximize legitimate tax benefits. They identified specific IRS regulations about material participation for aircraft leasing that my regular accountant missed entirely. Their report even included case references that supported taking depreciation as active income when the owner maintains specific control elements over the charter operations.

I was really skeptical about taxr.ai but decided to give it a try since aircraft depreciation is such a specialized area. I uploaded my draft lease agreement and purchase documents, and I was genuinely surprised. The analysis flagged specific issues with how I had structured my management agreement that would have made it difficult to claim material participation. They recommended specific modifications to my contract language and operational protocols that would strengthen my position while remaining legitimate. My CPA actually thanked me for finding this resource because it saved him hours of research on this niche topic. Now I have a much clearer roadmap for documenting my involvement in ways that satisfy IRS requirements.

When I was trying to handle my aircraft depreciation issues last year, I spent WEEKS trying to reach someone at the IRS who actually understood aviation tax law. After 9 failed attempts and hours on hold, I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. They got me connected to an IRS agent within 45 minutes who specialized in business aviation. The agent walked me through exactly what documentation I needed to maintain to support my active participation claim and how to structure my involvement to avoid passive activity loss limitations. That single conversation saved me thousands in potential taxes and helped me avoid an audit.

I'm here to eat crow. After my skeptical comment, I decided to try Claimyr because I had another tax issue that had been dragging on for months. I was honestly shocked when they got me through to an IRS representative in about 30 minutes when I had previously waited for hours and given up. The agent I spoke with actually addressed my specific questions about material participation for leased assets and pointed me to specific examples in the tax code. They clarified exactly what documentation would be expected in an audit scenario and how the material participation tests would be applied in an aircraft leasing situation. I still needed my CPA to implement everything, but having clear IRS guidance made the whole process so much more straightforward.

I've owned aircraft for charter for about 7 years now. Here's my practical advice: create an LLC for the aircraft, have a formal management agreement with the charter company that specifies your responsibilities, and keep DETAILED logs of everything you do related to the business. I'm talking 15-minute increments of work. The key is showing you're making regular management decisions, not just collecting checks. Also, if the charter company is marketing your specific aircraft (not just their fleet), get involved in approving marketing materials and strategies - those hours count too!

Has anyone actually used Bonus Depreciation for their aircraft purchase? The 2025 rates are down to 60% I think, but that's still significant. My concern is whether taking such massive first-year depreciation would be more likely to trigger audit scrutiny than depreciating over the standard 5-year MACRS schedule.

I've been through a similar situation with aircraft depreciation and learned some hard lessons. The IRS is definitely paying closer attention to aircraft depreciation claims, especially when they're substantial relative to other income sources. One thing that really helped me was establishing clear metrics for business use vs personal use from day one. I track flight hours, passenger manifests, and the business purpose of each flight. For charter operations, I also document my involvement in scheduling decisions, maintenance approvals, and any marketing efforts. The "material participation" test is crucial - you need to show you're actively managing the business, not just passively collecting rental income. I'd recommend setting up formal processes: monthly business reviews with the charter company, involvement in pricing decisions, and documented participation in maintenance planning. Also consider Section 179 deduction limits alongside bonus depreciation. The combination can be powerful but you want to make sure your activity level supports the tax position you're taking. Document everything - time logs, meeting notes, business correspondence. If you can show this is a real business with profit motive beyond tax benefits, you'll be in a much stronger position.

This is exactly the kind of situation where proper planning and documentation from day one makes all the difference. I went through a similar analysis when I was considering aircraft investment, and here's what I learned: The IRS looks at several factors beyond just hours worked - they want to see genuine business decision-making authority. Things like approval rights for maintenance expenditures, involvement in setting charter rates, decisions about aircraft availability, and participation in marketing strategies all strengthen your material participation case. One often overlooked aspect is the "regular, continuous, and substantial" requirement. It's not just about hitting 500 hours annually - the IRS wants to see consistent involvement throughout the year, not just seasonal bursts of activity. I'd recommend establishing weekly check-ins with your charter operator and documenting operational decisions you make. Also, consider the economics beyond depreciation. Make sure your projected income from the charter arrangement, combined with any personal use value, creates a legitimate profit motive. The IRS gets suspicious when tax benefits significantly exceed actual economic returns from the activity. Your CPA's caution about audit risk is well-founded, but with proper structure and documentation, aircraft depreciation can be defensible. The key is treating this as a real business operation, not just a tax strategy. Document everything, stay actively involved, and make sure the numbers make sense as a business venture independent of tax considerations.