A closely held Omaha manufacturer buys a used Citation for $9.5 million. The broker recommends a single-purpose LLC. The buyer’s accountant likes the idea because the depreciation looks enormous. The LLC is formed in Delaware on a Tuesday, the aircraft is registered to it on a Friday, and the company begins flying its executives the following month.
That structure is defective in at least three ways before the first flight. It probably violates FAA operating rules. It may forfeit the depreciation deduction that motivated it. It creates a Nebraska sales and use tax liability nobody priced into the deal.
Aircraft ownership sits at the intersection of federal aviation regulation, federal tax law, and Nebraska revenue and entity law. Each body of rules pushes toward a different answer, and the structure that satisfies the tax advisor frequently violates the operating rules the FAA enforces. Getting the entity right requires resolving those tensions deliberately, before the purchase agreement is signed.
Why the ownership entity has to be decided before the purchase agreement
Aircraft transactions move fast. A pre-buy inspection gets scheduled, a deposit goes into escrow, and the closing date is set 30 days out. Ownership structure gets treated as paperwork to sort out during the closing checklist.
Structure drives the economics. It determines which FAA operating rule governs the flights, whether federal excise tax applies to payments, how much Nebraska sales or use tax is owed, whether the aircraft is exposed to state personal property tax, and whether the depreciation deduction survives an audit. Reversing a decision after the aircraft is registered means amended FAA filings, new lease documents, potentially a second taxable transfer, and sometimes a second sales tax bill.
Decide the structure while the letter of intent is still being negotiated. The cost of that analysis is trivial against the cost of unwinding a bad one.
What is the flight department company trap?
The single most common structuring error in business aviation carries a specific name. A flight department company is an entity formed for the sole purpose of owning and operating an aircraft, which then transports the personnel of affiliated businesses.
The logic looks sound. Isolate the aircraft in its own LLC to contain liability. Have the operating businesses pay that LLC for their use. Everyone gets clean books.
The FAA views the arrangement differently. An entity whose only business is aircraft operation, receiving compensation to carry passengers, is providing air transportation for compensation.
Commercial air transportation requires an air carrier certificate under 14 C.F.R. Part 135. Without one, the flights are illegal charter operations.
Consequences reach beyond regulatory exposure. Aircraft insurance policies condition coverage on the aircraft being operated in compliance with applicable federal regulations. An illegal charter operation can void the hull and liability policy. A serious accident under those circumstances leaves the owner personally exposed to claims the insurer refuses to defend.
The trap is easy to fall into because the structure that produces it is the one most non-aviation lawyers would recommend by instinct. Liability isolation is standard practice in every other asset class. Aircraft are the exception.
Which FAA operating rule applies to your aircraft?
Two regulatory regimes matter for private aircraft.
Part 91 governs general aviation. An owner flying its own aircraft to carry its own personnel operates under Part 91. The pilot qualification, maintenance, and duty-time requirements are less demanding, operating costs are lower, and the aircraft can be depreciated over five years under MACRS.
Part 135 governs commercial charter. Carrying passengers or cargo for compensation or hire requires a Part 135 certificate, which brings a certificated maintenance program, drug and alcohol testing, stricter crew requirements, and a seven-year depreciation life.
The line between them is compensation. Payment for transportation, in almost any form, pushes an operation toward Part 135. Reimbursement between affiliated entities counts as compensation. So does an intercompany allocation on the general ledger.
Section 91.501 provides a set of exceptions for large aircraft, turbojets, and fractional program aircraft. Time sharing, interchange agreements, joint ownership, demonstration flights, and carriage of company officials all fall within the exception when properly documented. Time sharing under 14 C.F.R. section 91.501(c)(1) permits the owner to charge a lessee no more than twice the cost of fuel plus a defined list of incidental expenses. That ceiling exists precisely to keep the arrangement from becoming commercial transportation.
Aircraft below the large-aircraft and turbojet thresholds do not get the benefit of section 91.501. A King Air or a piston twin has fewer options, which makes the structuring analysis harder rather than easier.
How do dry leases work, and what makes them fail?
The standard solution to the flight department company problem is an owner entity that leases the aircraft on a dry basis to each operating company that uses it.
A dry lease conveys possession of the aircraft without crew. The lessee provides its own pilots, exercises operational control, and bears the responsibilities of the operator. Because the lessee is flying its own personnel on an aircraft it possesses, the flights remain under Part 91.
A wet lease conveys the aircraft together with crew. Wet leasing for compensation is commercial air transportation and requires a Part 135 certificate.
Dry leases fail in practice for predictable reasons:
The lessor keeps the pilots
If the owner entity employs the flight crew and the lessee simply pays for flights, the arrangement is a wet lease with different paperwork. Pilots must be employed by, or contracted directly to, the lessee.
Operational control stays with the lessor
Operational control means authority over initiating, conducting, and terminating a flight. The lessee decides whether the flight goes, where it goes, and whether conditions warrant a delay. When the owner’s chief pilot makes those calls for every flight regardless of which entity is nominally the lessee, the FAA will find that operational control never transferred.
The truth-in-leasing requirements are ignored
Under 14 C.F.R. section 91.23, leases of large civil aircraft, multiengine turbojets, and fractional program aircraft must be in writing, must contain a specified truth-in-leasing clause identifying the party responsible for operational control and maintenance compliance, must be mailed to the FAA Aircraft Registration Branch in Oklahoma City within 24 hours of execution, and must be preceded by notice to the responsible Flight Standards District Office at least 48 hours before the first flight. Skipping the filing is a discrete violation, and it also signals to an investigator that the parties never took the lease seriously.
Nobody follows the lease after signing
A dry lease that sits in a drawer while flights are scheduled through a shared calendar and costs are allocated by a monthly journal entry will not survive scrutiny. Rent must be invoiced. Invoices must be paid. Flight logs must show which lessee had the aircraft on which date.
Documentation matters, and so does conduct. The FAA and the IRS both look at what actually happened.
What does Nebraska sales and use tax cost on an aircraft purchase?
Nebraska imposes sales and use tax on aircraft, and the numbers are large enough to change deal economics. At the state rate of 5.5% plus local option tax that can reach 2% in Omaha, a $9.5 million aircraft carries a potential tax exposure approaching $700,000.
Three provisions drive the analysis.
The fly-away exemption
Neb. Rev. Stat. section 77-2704.26 exempts sale, lease, or rental of an aircraft delivered in Nebraska to a resident of another state or a person with a business location elsewhere, provided the aircraft is not registered or based in Nebraska and does not remain in the state beyond ten days. The provision protects Nebraska dealers selling to out-of-state buyers. It offers nothing to an Omaha company basing an aircraft at Eppley or Millard.
The common and contract carrier exemption
Under Neb. Rev. Stat. section 77-2704.30, aircraft used predominantly as common or contract carriers are exempt, along with repair and replacement parts. Regulation 1-069 defines a common carrier as an aircraft predominantly used by its owner to transport the general public and the goods of the general public for compensation, and a contract carrier as one predominantly used to transport specific persons under contract for compensation.
Two features of that exemption trip up buyers. Qualification demands predominant use, so an aircraft flown mostly for the owner’s own executives with occasional third-party charter will not qualify. And the exemption requires an affirmative application to the Nebraska Department of Revenue on department forms. Regulation 1-069 establishes a presumption against carrier status for any aircraft that has not been qualified with the Department. Buyers who assume the exemption applies because a management company placed the aircraft on a Part 135 certificate, without filing the application, discover the gap during an audit.
Use tax on aircraft purchased elsewhere. Buying in a state without sales tax does not solve the problem. Nebraska imposes use tax on aircraft stored, used, or consumed in the state, with credit for tax properly paid to another jurisdiction. An aircraft purchased in a no-tax state and hangared in Omaha owes Nebraska use tax on the full purchase price.
Leasing between related entities introduces a further wrinkle. Nebraska taxes lease and rental receipts. An owner LLC that dry leases the aircraft to affiliated operating companies is generating taxable rental receipts, and the lease payments may carry their own tax on top of whatever was paid at acquisition. Structuring the lease so that tax is paid once, on the correct base, requires deliberate planning rather than a form document.
Does Nebraska tax an aircraft as business personal property?
Nebraska taxes only depreciable tangible personal property used in a trade or business or held for the production of income, with a determinable useful life longer than one year. Property is assessed as of January 1 at 12:01 a.m. under Neb. Rev. Stat. section 77-1201, and Neb. Rev. Stat. section 77-105 defines tangible personal property to include all personal property with physical existence other than money.
That framework produces a result many owners find counterintuitive. An aircraft owned personally and flown purely for pleasure generally escapes Nebraska personal property tax, because it is not depreciable property used in a trade or business. Placing the same aircraft into an LLC and depreciating it converts it into taxable business personal property, assessed annually.
The tax is not enormous relative to the asset, but it is recurring, it compounds over a long ownership period, and it is routinely omitted from the operating budget a buyer builds before closing. It also interacts with the January 1 assessment date in ways worth planning around when a purchase falls near year-end.
How does federal excise tax apply to private flights?
Federal excise tax under 26 U.S.C. section 4261 imposes 7.5% on amounts paid for taxable transportation of persons by air, plus a per-passenger domestic segment fee. The tax applies to payments for transportation, which makes it a direct consequence of how the ownership structure moves money.
Owner flights under Part 91 generally sit outside section 4261. The owner is not paying anyone for transportation, and the applicable federal tax burden falls on fuel rather than on transportation payments.
Payments under a wet lease or a charter arrangement are subject to the transportation tax. Dry lease payments generally are not, because a dry lease conveys possession of property rather than transportation services. That distinction gives the dry lease structure a federal excise tax advantage on top of its regulatory advantage, and it also raises the stakes when a purported dry lease is recharacterized.
Aircraft management arrangements received clarifying treatment in 2017, when Congress added section 4261(e)(5) to exempt amounts paid by an aircraft owner for aircraft management services from the transportation tax. The exemption covers support services including crew, maintenance coordination, scheduling, hangaring, and administrative support furnished for the owner’s own flights. It does not extend to charter revenue when the management company places the aircraft on its certificate and sells third-party flights.
What can you actually deduct?
The depreciation opportunity is what drives most buyers to structure ownership through an entity in the first place, and the current rules are as favorable as they have ever been.
The One Big Beautiful Bill Act, enacted July 4, 2025, permanently restored 100% bonus depreciation under 26 U.S.C. section 168(k) for qualifying property acquired and placed in service after January 19, 2025. A qualifying business aircraft, new or used, can be written off entirely in the first year with no dollar ceiling.
Three limitations govern whether that deduction survives.
Section 280F listed property rules
Aircraft are listed property. Bonus depreciation and accelerated MACRS require qualified business use exceeding 50%. Fall below that threshold and the taxpayer is relegated to straight-line depreciation under the alternative depreciation system, with recapture of accelerated deductions already claimed. Leasing to 5% owners and related parties receives restricted treatment under section 280F(d)(6)(C), which matters enormously in a closely held company where the principal is both the majority owner and the primary passenger.
Section 274 entertainment disallowance
Treasury Regulation section 1.274-10 governs deductions for aircraft used for entertainment. Costs allocable to entertainment flights by specified individuals, meaning officers, directors, and more-than-10% owners, are disallowed except to the extent of compensation imputed to those individuals. A flight to a business meeting is deductible. A flight to a resort is not, and the disallowance is computed on an occupied-seat-hour or occupied-seat-mile basis that requires flight-by-flight, passenger-by-passenger records.
Imputed income for personal use
Personal flights by employees and owners produce taxable compensation, valued under the standard industry fare level formula in Treas. Reg. section 1.61-21(g). SIFL rates are published semiannually and generally produce a value well below charter cost, which is why the method is used. Applying it requires contemporaneous records of every passenger on every leg and the business or personal character of each.
One planning tool that used to soften the exit is gone. The Tax Cuts and Jobs Act limited like-kind exchange treatment under section 1031 to real property. Aircraft trades now produce recognized gain, and an owner who fully depreciated an aircraft faces depreciation recapture at ordinary rates on sale. That liability should be modeled at acquisition rather than discovered at disposition.
Recordkeeping is the operative requirement running through all three limitations. Every reported case in this area turns on whether the taxpayer kept flight-level records showing date, route, passengers, and purpose. Structuring cannot substitute for a flight log.
How should the entity be papered under Nebraska law?
Once the operating structure is settled, the entity documents have to support it.
Registration eligibility
Aircraft may be registered in the United States only to citizens as defined in 49 U.S.C. section 40102(a)(15), resident aliens, or corporations meeting specific ownership and control tests under 49 U.S.C. section 44102. A Nebraska LLC with any foreign member requires careful analysis, and an owner trust may be necessary. Confirm eligibility before formation rather than after a registration application is rejected.
Nebraska LLC formalities
The Nebraska Uniform Limited Liability Company Act, Neb. Rev. Stat. sections 21-101 et seq., supplies default rules that rarely fit an aircraft-holding entity. Draft an operating agreement addressing use allocation among members, cost sharing, scheduling priority, insurance obligations, indemnification, and transfer restrictions. Silence on scheduling priority produces the disputes that eventually reach litigation.
Respecting the entity
Nebraska courts pierce the entity veil only where the entity has been used to commit fraud, violate a legal duty, or perpetrate a dishonest or unjust act against another. See Christian v. Smith, 276 Neb. 867, 759 N.W.2d 447 (2008). Factors include grossly inadequate capitalization, insolvency when the obligation was incurred, and diversion of entity funds to personal use. An aircraft LLC capitalized with nothing but a leveraged aircraft, whose expenses are paid directly by the principal’s operating company, presents each of those factors at once. Fund the entity. Keep a separate account. Pay its own bills from it.
Nebraska aircraft registration
Aircraft based in Nebraska must be registered with the Division of Aeronautics of the Nebraska Department of Transportation. Registration is separate from FAA registration and separate from the tax analysis, and it is regularly missed by owners who assume the federal filing covers everything.
Lien and title work
Aircraft titles are recorded with the FAA Civil Aviation Registry in Oklahoma City, and the International Registry under the Cape Town Convention applies to most turbine aircraft. Title search, escrow, and filing coordination are handled by specialized firms in Oklahoma City, and closings are structured around their filing schedule.
Should you own at all?
Full ownership makes sense above roughly 200 to 250 annual flight hours, subject to mission profile and how much the owner values control over scheduling and crew.
Below that threshold, alternatives deserve serious comparison. Fractional programs deliver guaranteed availability and a defined exit at the cost of a premium over hourly charter economics. Jet cards convert the commitment into a prepaid block with no residual value risk and no depreciation benefit. Ad hoc charter carries no fixed cost and no capital exposure. Joint ownership between two unrelated businesses, structured under 14 C.F.R. section 91.501(b)(3), can work where the missions genuinely complement each other, though the operating agreement carries all the weight when schedules collide.
Depreciation is a timing benefit and a deferral, not free money. Owners who buy primarily for the tax deduction, without the flight hours to justify the fixed cost, frequently sell within four years and recognize the recapture they deferred.
Frequently Asked Questions
Can I put my private jet in an LLC in Nebraska?
You can, and most owners do, but the LLC cannot be a bare aircraft-holding entity that charges affiliated companies for flights. That structure is the flight department company trap, and it constitutes unlicensed commercial air transportation. The workable version is an owner LLC that dry leases the aircraft to each operating company, with each lessee providing its own crew and exercising operational control.
Does Nebraska charge sales tax on aircraft purchases?
Yes. Nebraska imposes sales tax at the state rate plus applicable local option tax, and use tax on aircraft purchased elsewhere and based in Nebraska. Neb. Rev. Stat. section 77-2704.26 exempts fly-away sales to non-residents who remove the aircraft within ten days. Neb. Rev. Stat. section 77-2704.30 exempts aircraft used predominantly as common or contract carriers, but only where the owner has applied to and qualified with the Nebraska Department of Revenue.
What is a dry lease and why does it matter?
A dry lease conveys the aircraft without crew, leaving the lessee to supply pilots and exercise operational control. Because the lessee flies its own personnel on an aircraft it possesses, the operation stays under Part 91 and avoids the Part 135 certificate requirement. Dry lease payments generally also fall outside the 7.5% federal transportation excise tax under 26 U.S.C. section 4261.
Can I deduct 100% of a business aircraft purchase in the first year?
Often, yes. The One Big Beautiful Bill Act permanently restored 100% bonus depreciation under 26 U.S.C. section 168(k) for qualifying property acquired and placed in service after January 19, 2025. Qualified business use must exceed 50% under the section 280F listed property rules, entertainment flights by officers and significant owners are disallowed under Treas. Reg. section 1.274-10, and personal flights generate imputed income. The deduction depends on flight-level records showing date, route, passengers, and purpose.
Will Nebraska tax my aircraft every year?
Only if it is depreciable property used in a trade or business or held for the production of income. Nebraska assesses that category of tangible personal property annually as of January 1 under Neb. Rev. Stat. section 77-1201. Placing an aircraft into a business entity and depreciating it brings it inside the tax; a purely personal-use aircraft owned individually generally falls outside it.
Talk to a Nebraska Aircraft Attorney Today
If you are evaluating an aircraft purchase, restructuring an existing ownership entity, or responding to a Nebraska Department of Revenue inquiry about an aircraft already in service, Horgan Law LLC can help. Call 402-965-0652 or contact us to schedule a consultation.