If you are the owner of a private plane, you may already know that trying to satisfy the rules and regulations of both the FAA and IRS can feel like an impossible task. This may also be true when it comes to using your aircraft for charitable flights. There are a number of ways to use your aircraft for charitable purposes such as medical transportation, search and rescue, disaster relief, or use by a 501(c)(3) organization, but exactly what type of expenses can be deducted and is it worth it?
Federal Aviation Administration’s (FAA) compensation or hire rule states that anything of value is considered compensation, including flight time, goodwill and the exchange of services. Therefore the charitable deduction of costs associated with a charitable flight would be considered compensation to the pilot and is prohibited by the Federal Aviation Regulations.
For a corporate aircraft, the IRS allows the deduction of variable costs directly attributed to the charitable flight. This includes fuel, oil, landing and navigation fees, and pilot fees. However, a percentage of fixed costs associated with the aircraft such as insurance and depreciation are not deductible when associated with a charitable flight.
For Example: If the total flight hours of an aircraft in a given year are allocated 75% for business use and 25% for charitable use, you would be unable to deduct 25% of the aircraft’s fixed expenses and depreciation that are associated with the charitable flights.
If structured properly, there may be other ways to work around the compensation or hire and depreciation issues if you are still set on using your aircraft to help others:
- Privately Owned: If the aircraft is owned by an individual, you have more flexibility on how you use the aircraft and what deductions you are able to take.
- Fringe Benefit: Categorizing a corporate flight used for charitable use as a fringe benefit (personal non-entertainment) could allow you to deduct both fixed and variable costs. By adding the value of the fringe benefit to the executive’s compensation, the flight is fully deductible by the company and will not dilute the aircraft’s depreciation.
- Public Benefit Flying: Umbrella organizations that facilitate pilots and aviation services offer certain exceptions to the FAA’s compensation or hire rule.
Aircraft deductions are heavily scrutinized by the IRS and proper substantiation is key. A donor can deduct a charitable contribution of $250 or more only if the donor has a written acknowledgment from an IRS recognized charitable organization.
If you are potentially looking into purchasing a plane, or converting the use of your existing plane for a charitable purpose, please feel free to call your L&B professional at (858) 558-9200.