Deduct your flying lessons: Can you take a tax deduction for your flying lessons? The short answer: yes, but it depends on your situation and the circumstances. To justify such a deduction, a taxpayer must show that the lessons are a reasonable and necessary business expense and not just helpful or useful. Alternatively, a taxpayer could argue that the lessons are an educational expense necessary for a job that requires private flight. The pilot must take due care to make these decisions up front so that he has a good defense in the event of an audit. Unlike in most other areas of US law it is the taxpayer’s burden to prove that a claimed deduction is legitimate.
In early 2012, a U.S. Tax Court considered this question and ruled that an experienced commercial real estate broker’s flight lessons were non-deductible. The broker’s job involved identifying large properties to sell and drafting detailed brochures for prospective buyers. From 2005 to 2007 he chartered airplanes to assist in finding and evaluating such properties. During these flights, a licensed pilot flew the airplane while the broker took photographs that were included in the brochures. To avoid future expenses of chartering flights the broker took flight lessons and purchased a Cessna 172s aircraft to perform the same task. He subsequently claimed those flight lessons as an expense of $33,000.00 on his 2007 federal income tax return. When the claimed deduction was challenged in court, however, he could not provide any receipts or invoices documenting the flight lessons, and therefore could not take a tax deduction for those flying lessons.
Upholding the IRS’ determination, the Court found that the broker failed to prove that flight lessons were an educational expense required for the business of a commercial Realtor The Court concluded that while evaluating properties from the air may be helpful to a Realtor this particular broker had been able to do so earlier without the necessity of actually piloting a plane. He could not explain why flight lessons were now required in order to view the properties or obtain aerial photographs. Regarding the claimed business expense, the broker failed to provide evidence that flight lessons are normal, usual, or customary for commercial Realtor.
Adding insult to injury, the Court made a point of saying that the broker had not acted in good faith for claiming the subject deductions and upheld the 20% penalty assessment. A taxpayer may be penalized if they act negligently or disregard (careless or otherwise) the tax law. The Court noted that the broker was a sophisticated taxpayer with 20 years of experience as a licensed financial advisor and commercial Realtor The Court similarly dismissed the broker’s defense that he just relied on professional advice in setting up his airplane structure. The Court found broker had also erred in failing to keep financial records regarding the cost and purpose of the flight lessons.
These deductibility rules apply not only to the novice aviator but also those with years of flying experience. As long as a taxpayer can justify the claimed deduction there is no rule barring that person from advancing their education and improving their rating, however, the taxpayer must continue to demonstrate that such expenses are an ordinary and necessary part of his existing business. Cases in which the pilot deducts flight lessons in preparation for another career (such as moving from a general aviation pilot to an airline or transport pilot) seldom favor the taxpayer.
Careful planning can avoid the pitfalls illustrated above. Here the deductions were disallowed not because of a “per se” rule against claiming a deduction for flight lessons but because he failed to demonstrate and document the connection between his real estate business and private flight. The result may have been different, for example, if there was no viable option for sustaining his real estate business other than to fly privately, perhaps if the taxpayer owned real property spread over a large geographical area or in hard-to-reach places.
Consulting with a knowledge and experienced aviation tax advisor will ensure you’re on the right side of tax law (or a court’s opinion).