We already knew that wealthy people enjoy their private airplanes, but the new tax law President Donald Trump signed in 2017 appears to have given some of America’s wealthy a new incentive to make the purchase.
According to Bloomberg, tax experts have found a way to counter the “excess business losses” provision in the new tax law, which left some investors with sizable tax bills on personal income that in previous years could have been offset.
The advice of those tax experts? Buy a private plane.
Though private jets cost millions to purchase, they can be used primarily for work — unlike a yacht or a home in the Hamptons.
At first glance, buying a multi million-dollar private jet would seem only to compound the potential problem of the business-loss restriction. That’s because “bonus depreciation” creates sizable business losses that are now capped -- potentially making it harder for managers to offset their profits from carried interest.
Yet when they buy a jet, investment-fund and family-office managers are recasting on paper the way they get paid, according to three investment fund professionals. By morphing their carried-interest payouts into management fees that are business income to the fund, managers can soak up the sizable business loss that buying an airplane usually creates.
Managers can thus avoid both what originally would have been a capital gains tax bill on their carried interest, and what would have been ordinary taxes on their management fees.
Bloomberg noted that the brother of White House senior adviser and presidential son-in-law Jared Kushner, Joshua, “bought a used Bombardier Challenger 300 earlier this year.”
Joshua runs the venture capital firm Thrive Capital Management.
Michael Kosnitzky, a tax lawyer who chairs the private client group at Pillsbury Winthrop Shaw Pittman, told Bloomberg “it’s logical not to waste a loss.”
“This is an industry that likes private planes, gets paid a lot of money and wants to minimize taxes,” Kosnitzky said, adding, “no one should be surprised.”