Why Are So Many Millionaires Buying Private Jets?

How the CARES Act made the 1% richer

Photo by Chalo Garcia from Pexels

Nothing gets on my nerves more than someone who doesn’t pay their fair share of taxes. I’m looking at you, wealthy people. Not all of you — but certainly a good chunk — need to start paying up.

Tax loopholes are no stranger to the wealthy, and there’s a new one floating around — private jets. Private jet sales have gone up, and the rich pay no taxes on them, with some even receiving tax refunds.

And of course, this was inspired by Senator Kelly Loeffler after she purchased a private jet to exploit the tax system.

We need to understand a couple of things before we get into why the wealthy are buying specifically private jets.

  1. Recent tax laws set in place, including the CARES Act
  2. How businesses are used to write off expenses

We always hear about new laws being passed about benefiting CEOs and the wealthy, but exactly what part benefits them? Not everyone is knowledgeable on tax laws— I barely am — but it’s important to understand the different pieces of legislation that affect the economy.

These tax breaks only apply to businesses, so we need to understand how that works as well. Individuals are limited on the types of deductions allowed.

Alright, so what’s going on with these private jet sales? Let’s figure it out together.

The ‘tremendous’ tax changes

Tax Cuts and Jobs Act of 2017

I’m sure you’ve heard of this act before. The Tax Cuts and Jobs Act of 2017 lowered income taxes by a few percent for all income brackets and cut the corporate tax rate down to 21%.

The TCJA was intended to help boost the economy in multiple ways, and that includes changes to the way specific expenses can be deducted. One of those changes is called bonus depreciation.

Bonus Depreciation
Usually, when a business purchases a piece of equipment, the depreciation cost is amortized (spread across multiple years) until its end-of-life date. With bonus depreciation, companies are allowed to expense 100% of the cost of certain assets. This was previously 50%.

CARES Act of 2020

The CARES Act of 2020 was one of the largest spending packages passed in US history and for understandable reasons. This was passed to stimulate the rapidly declining economy.

Specific tax relief programs were put in place to help businesses stay afloat. Of course, there will always be individuals who take advantage of this aid and use it for their own personal gain.

One important part of the CARES Act was the allowance of net operating loss carryback.

Net Operating Loss (NOL) Carryback
Net operating loss is calculated using adjusted gross income - deductions. When you have a net operating loss, you are now allowed to “carryback” any additional loss to the previous year’s profits. This wasn’t allowed under the TCJA but was changed with the passing of the CARES Act.

The beauty of business write-offs

Individuals can't write off private jets — you need to go through a business instead.

When you think “business,” that doesn’t always mean a company with hundreds of people. A common type of business setup is an S Corporation. By forming an S Corp, owners can restructure how much taxes need to be paid. Many taxes can be avoided by registering as an S Corp.

S Corporations are considered pass-through entities. Meaning, the company would pay the owner a set salary and operate as an actual business. The “business” operation could range from a holding company to a family office.

Writing off expenses, explained

  1. I make $5 million in 2019 and $5 million in 2020
  2. I buy a private jet in 2020 for $10 million
  3. I write off 100% of the cost of the jet using bonus depreciation
  4. I have a net operating loss of $5 million and carryback that loss to 2019’s profits
  5. I receive a tax refund for taxes paid on profits in 2019

The way the government is set up currently, businesses can deduct their losses against their revenue. Think of it as “they’re investing more into the economy, so we won’t make them pay taxes.”

This isn’t always bad, either. You want businesses to invest back into themselves and continue to create more jobs. However, there will always be a select few that decide to take advantage of the system.

Do you see the problem?

If you want the short answer, millionaires are starting to buy more privates jets for one reason — fewer taxes and more refunds. By using bonus depreciation and net operating loss carryback, CEOs and individuals can avoid paying taxes.

Even though the Tax Cuts and Jobs Act and CARES Act were meant to boost economic activity, it didn’t necessarily play out that way. The money saved from not paying taxes never really “trickled down” like we were told.

In addition…

To qualify for bonus depreciation, you must use the asset exclusively for business for the first year. After one year, the plane can be used for personal, non-entertainment use 50% of the time. So not only will the owner have a private jet, but they also reduced their taxable income with the purchase.

Now you’re stuck with a bunch of rich people flying around on “business trips” and doing “important things.”

Do you see why a wealthy person would want to take advantage of this?

Final thoughts

These tax breaks were meant to “trickle-down” and benefit the working class. To no one’s surprise, it didn’t work at all. CEOs and the ultra-wealthy decided to buy planes instead.

Taxes are used for infrastructure, schools, and hospitals. We need that money — especially now. While there was good intent to help boost the economy, it only made the rich even richer.

And if corporations and the ultra-wealthy are not paying taxes, who do you think foots the bill? You and me. The government needs to generate revenue somehow. Simply put, it’s not fair.

Where do we draw the line?

Just a college kid trying to make it. IT nerd. I like talking about life, personal finance, and mental health. Say hi! -> ryan@ryanfulton.co

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