Aircraft tax question

Mike Rapoport wrote:

"TaxSrv" wrote in message
...

"Mike Rapoport" wrote:

Figuring out your cost basis after years of ownership
would be very difficult if not impossible.

Not necessarily at all. Basis is simply original cost, plus only
capital expenditures. Latter typically is engine and/or prop,
major overhaul or new. Add amounts spent for avionics plus
additional panel instrumentation, not mere replacements. Subtract
avionics ripped out and sold, removing the sales price, like on
eBay. Paint is never a capital item, but an interior would be if a
significant improvement, like leather replacing cloth or ugly
factory design.

An abnormal case, but mine was $12K new in 1977; so say sold now
for $30K. Avionics items about $5K years ago on a mental tally.
Interior job don't count; it was essentially repair replacement.
So I have a guess $13K taxable gain, at a low capital gain rate. I
need then to dig out the actual avionics invoices, which I should
have in a fat file folder, or list from memory where need be. A
good-faith estimate for basis items can go on a 1040; if audited,
discuss then without much fuss.

If a loss on a personal use aircraft, nothing is reported to IRS,
as it is net gain, not sales price which is reported on 1040 Sch D.

Fred F.



I see the following problems/ambiguities with your method:

I would definately add paint to the basis, particularly if it was done
recently. It definately adds value to the airplane.

I'm not a tax expert, but from what I understand, paint would definitely
be considered maintenance rather than a capital improvement. I believe
the basic rule is pretty simple: are you bringing the asset back to a
state in which it formerly existed or are you taking it to a "better"
state? If the airplane came from the factory with good paint, then
painting it is simply restoring it to its previous condition and thus is
a repair and not an improvement. Now a high-end custom mural airbrush
paint job could probably legimately be argued to be a capital
improvement. :-)


How much of the upgraded avionics value was "consumed" during your
ownership? Normally one would depreciate the avionics and have a basis for
them, but is is fair to add the entire avionics cost to the airplane's basis
if the avionics were added 15yrs and 2000hrs ago?

But depreciation assumes business use for the asset, right?


If, the day before I sell the airplane, I replace the autopilot servos that
were 15yrs old when I bought the airplane and 20yrs old now, does that add
to the basis?

I suspect that would be a hrad sell unless the servos add some
substantial new features. If they simply replicate the
performance/features of the original servos, then I could see the IRS
determining this to be a repair.


If, when the airplane was purchased, all the bushings in the landing gear
pivots were worn out and replaced at the buyers expense, shouldn't that be
factored into the basis? If the seller had replace the bushings and
increased the price by the cost to do so, the basis would be higher.

Again, I'd say this is a repair. It is like putting new siding on your
house or replacing your shingles or your water heater.


If you purchased the airplane with a crappy interior and it is like new now
then clearly you should add some of that cost to the basis but how much?

Only what went beyond the original. If it came with cloth seats and you
replace with leather, then I think you could argue a basis increase. If
you simply replace with new cloth, then I think the basis remains the same.


If you bought the airplane with a run out engine and overhauled the engine
for $10K and TBO is 2000hrs and you have put 1000hrs on the engine, what
should you do to the airplanes basis? If you just pro-rate you get $5K
What if you had to do a top overhaul for $5K at 900hrs?

Good question. Again, seems like a repair under the standard IRS rules,
but given the extreme cost of repairs on an airplane, maybe there is a
different treatment allowed for things like overhauls.


All these things are easy if the airplane was used for business and all
expenses were either expensed or capitalized and depreciated leading to an
unambigous basis. A used airplane is actually a collection of used parts in
variour stages of wearing out. After owning an airplane for multiple years
it is impossible to calculate what the true basis should be unless you know
what the life limits of each part are. The airplanes I have sold were, in
most ways, newer than when I bought them

I think that there is so much ambiguity here that reasonable arguments could
be made that there is no gain on sale in the vast majority of cases. In the
case of the airplane that would sell for more than new, clearly there is a
gain if it was purchased new and the total of any improvements was less than
the increase in value.

Yes, I guess it probably comes down to who your auditor is and how
persuasive you or your lawyer are. :-)

I've never yet had the pleasure of an IRS audit, so I have no idea how
the typical auditor is with respect to logical arguments.


Matt