For high-net-worth individuals, certain purchases represent a distinct category of asset that comes with its own financial complexity. Private aircraft, yachts, and vacation or second homes are among the most significant discretionary purchases a person can make, and each carries costs, tax implications, and planning considerations that go well beyond the purchase price.
Understanding the full picture before you buy, and structuring ownership thoughtfully, can make a meaningful difference in both enjoyment and financial outcome.
Private Aircraft
The purchase price of a private aircraft is typically the smallest part of the total cost of ownership. Annual operating costs including fuel, maintenance, crew, insurance, hangar fees, and regulatory compliance, can run 10–20% of the aircraft’s value per year or more, depending on the size and type.
On the tax side, aircraft used for business purposes may qualify for deductions, including bonus depreciation under current tax law, though the rules are detailed and how the aircraft is used matters considerably. Personal use of a business aircraft can create taxable income for the owner, and the IRS scrutinizes these deductions closely.
Ownership structure also matters. Aircraft are commonly held in LLCs for liability protection and operational flexibility. Charter arrangements, where the aircraft generates revenue when you’re not using it, add another layer of tax and regulatory complexity worth understanding before you commit.
Yachts and Watercraft
Similar to aircraft, yachts carry substantial ongoing costs. We’re talking crew, maintenance, berthing, insurance, fuel, and flag registration that can easily reach 10% or more of the vessel’s value annually. A yacht that sits unused for much of the year is a particularly expensive asset.
Like aircraft, yachts used for charter can generate revenue and may qualify for business deductions. But the rules governing what qualifies are specific and worth reviewing with a qualified tax advisor. Where the vessel is flagged and where it operates can also create jurisdictional tax considerations, particularly for international use.
Marine insurance for high-value vessels is a specialized market. Coverage needs extend beyond liability to include hull, equipment, crew liability, and environmental risk. The right coverage varies by vessel type and how it’s used.
Second Homes and Vacation Properties
A second home is often the most financially nuanced of the three. This is partly because it feels the most familia. Because the tax treatment depends heavily on how the property is used.
A property used exclusively for personal purposes has a different tax profile than one rented out for part of the year. The IRS has specific rules about the number of days a property is rented versus personally used. And these rules determine what expenses are deductible and how rental income is treated. Getting this wrong, even unintentionally, is a common source of audit exposure.
For estate planning purposes, vacation properties held in the family often become the subject of difficult conversations. Who can use the property? Who pays for maintenance? And what happens to it when it passes to the next generation? A qualified personal residence trust (QPRT) or LLC structure can help manage both the tax and the family dynamics around a high-value property.
The Planning Conversation Worth Having First
None of this is meant to discourage these purchases. For many high-net-worth individuals, these purchases represent a meaningful quality of life. The goal is to own them on your terms, with a clear understanding of the ongoing costs, the right structure in place, and the tax picture factored in from the start.
A financial professional at Barnum can help you think through how a major purchase fits within your financial plan. They can also connect you with the tax and legal specialists who can help structure it appropriately.
Disclaimer: Neither MML Investors Services nor any of its subsidiaries, employees or agents are authorized to give legal or tax advice. Consult your own personal attorney, legal or tax counsel for advice on specific legal and tax matters.
