IRS Updates Concept Unit on Allocation Methods of Personal Use of Aircraft (June 21, 2021)

The IRS has updated its concept unit on Allocation Methods of Personal Use of Aircraft. The overview is as follows:

Taxpayers who use their own aircraft for both business and personal flights must allocate expenses to each category. Personal flight expenses are further allocated between personal entertainment flights and personal non-entertainment flights but making that determination is beyond the scope of this Concept Unit.

Treas. Reg. 1.274-10(e) provides four permissible allocation methods. For clarity, they are presented as four separate methods here. With any of these methods, a taxpayer must use the same method for all aircraft for the entire tax year, but a taxpayer can change to one of the other authorized methods in a subsequent year. Taxpayer may aggregate similar cost profile aircraft in these calculations. Similar cost profile aircraft per T.R. 1.274-10(d)(4)(ii) are aircraft that have comparable flight operating costs per mile or per hour.

The four permissible allocation methods are:

  • Occupied Seat Methods:
    • Hours
    • Miles
  • Flight-by-Flight Methods
    • Hours
    • Miles

Treas. Reg. 1.274-10 provides the permissible methods for the allocation of personal use.

Occupied Seat Methods

  • Hours: Number of hours flown by the individual multiplied by the “cost per occupied seat hour”**
  • Miles: Number of miles flown by the individual multiplied by the “cost per occupied seat mile”**

Flight-by-Flight Methods

  • Hours: Allocate expenses per hour to an individual flight and then to a specified individual traveling for entertainment purposes on that flight**
  • Miles: Allocate expenses per mile to an individual flight and then to a specified individual traveling for entertainment purposes on that flight**

**See the “Formulas” slides in the Detailed Explanation of the Concept section of this Practice Unit for how each component is computed.

Download the full updated concept unit by clicking IRS Updates Concept Unit on Allocation Methods of Personal Use of Aircraft (June 21, 2021).

Posted by Jessica Ji, Associate Editor, Wealth Strategies Journal.

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