AOPA Plane Giveaway and Taxes

In a previous article, George Patterson said:
Jon Kraus wrote:
Does anyone know if there would be tax consequences for the lucky winner
of the AOPA Commander 112. Thanks!!

The winner will pay Federal income taxes. Most States also have an income tax,
and the winner will pay that if he or she lives in one. Many States will also
charge a sales or usage tax.

So do they valuate the aircraft at the fair market value (ie. what a
normal Commander 112 of that age would fetch), or do they add all the
ridiculously expensive add-ons (none of which AOPA actually pays for,
since it's free advertising for the supplier) to that price and value it
at an amount that you'd never be able to sell the plane for in a million
years?



--
Paul Tomblin http://xcski.com/blogs/pt/
I mean, if went 'round saying I was a perl hacker, just because some
moistened bint lobbed a "Perl for Dummies" at me, they'd put me away!
-- Randy the Random

Paul Tomblin wrote:
In a previous article, George Patterson said:

Jon Kraus wrote:

Does anyone know if there would be tax consequences for the lucky winner
of the AOPA Commander 112. Thanks!!

The winner will pay Federal income taxes. Most States also have an income tax,
and the winner will pay that if he or she lives in one. Many States will also
charge a sales or usage tax.


So do they valuate the aircraft at the fair market value (ie. what a
normal Commander 112 of that age would fetch), or do they add all the
ridiculously expensive add-ons (none of which AOPA actually pays for,
since it's free advertising for the supplier) to that price and value it
at an amount that you'd never be able to sell the plane for in a million
years?

A normal Commander of that age wouldn't have all of the upgrades so you
can't use that as fair market value. I would hope they would have the
airplane appraised by someone who does that for a living to get a
reasonable value. Yes, you can't just add up the cost of the upgrades,
but you certainly can't take the market price of a standard Commander
either. I wish AOPA would include a cash prize that would at least
cover part of the taxes. I saw a lame excuse as to why they couldn't do
this, but the folks at Kiplinger Personal Finance do this and they
should know the tax laws at least as well AOPA.


Matt

Paul Tomblin wrote:

So do they valuate the aircraft at the fair market value (ie. what a
normal Commander 112 of that age would fetch), or do they add all the
ridiculously expensive add-ons (none of which AOPA actually pays for,
since it's free advertising for the supplier) to that price and value it
at an amount that you'd never be able to sell the plane for in a million
years?

Basically, you're stuck with what they paid for the plane, plus the price of all
the add-ons. Just as if you bought the plane for that price and paid to have all
that work done. You can try getting an appraiser to produce a value for the
plane, but that won't fly with the State of New Jersey (dunno about the Feds).

The only way I know to pay taxes on a lower value is to sell the plane for less.
Selling the plane automatically determines the market value.

George Patterson
Coffee is only a way of stealing time that should by rights belong to
your slightly older self.

"George Patterson" wrote:
Basically, you're stuck with what they paid for the plane, plus
the price of all
the add-ons. Just as if you bought the plane for that price and
paid to have all
that work done. You can try getting an appraiser to produce a
value for the
plane, but that won't fly with the State of New Jersey (dunno
about the Feds).


That ain't the IRS position. The number on Form 1099 is to be fair
market value, and indeed the value of all the "stuff" added may not
reflect final FMV, as other posters have noted. What does often
happen with issuers of 1099s is they think if they don't put an
"optimum value" on the 1099, they get into trouble with IRS.
Nonsense, as they have no enforcement program for this on the payer
side, and in fact IRS would rather not get into audit hassles where
the winner claims a justified, lesser value on Form 1040.

Fred F.

Just because you stuff new stuff inside doesn't change the fact that the
airframe is xx-years old.
Last I checked, an xx-year old airframe doesn't have the same value as
one fresh out of the factory.
Likewise, the value of the new stuff stuffed inside the xx-year old
airframe won't have the same value as the same stuff in a box on the
shops shelf.
Once installed, it becomes used equipment and is devalued accordingly.

john smith wrote:
Just because you stuff new stuff inside doesn't change the fact that the
airframe is xx-years old.
Last I checked, an xx-year old airframe doesn't have the same value as
one fresh out of the factory.
Likewise, the value of the new stuff stuffed inside the xx-year old
airframe won't have the same value as the same stuff in a box on the
shops shelf.
Once installed, it becomes used equipment and is devalued accordingly.

Sure, but the airplane is still worth a lot more than an unupgraded
airplane of the same model and vintage.

Matt

TaxSrv wrote:

That ain't the IRS position. The number on Form 1099 is to be fair
market value, and indeed the value of all the "stuff" added may not
reflect final FMV, as other posters have noted.

I agree with Fred here. In the case of something like a "New Car"
the IRS will consider the value to be the MSRP. However since this
isn't the case, some acceptable appraisal technique (blue book,
etc...) will apply.

Except there the "blue book" on new property is the manufacturers list
price. Fair market value is the price the plane would bring on the open
market between willing sellers and buyer. IRS Pub 561.
http://www.irs.gov/pub/irs-pdf/p561.pdf#search='irs%20fair%20market%20value'

The challenge with a new plane loaded with expensive extras is that it
is unique so willing buyers may be few since they can buy the same plane
new and upgrade it as they choose making the fair market value approach
list prices.

"Ron Natalie" wrote in message
m...
TaxSrv wrote:

That ain't the IRS position. The number on Form 1099 is to be fair
market value, and indeed the value of all the "stuff" added may not
reflect final FMV, as other posters have noted.

I agree with Fred here. In the case of something like a "New Car"
the IRS will consider the value to be the MSRP. However since this
isn't the case, some acceptable appraisal technique (blue book,
etc...) will apply.

sfb wrote:
Except there the "blue book" on new property is the manufacturers list
price.

I said that. New items are valued at the MSRP (regardless of how
inflated that might be over what the actual VALUE of the item is).

The challenge with a new plane loaded with expensive extras is that it
is unique so willing buyers may be few since they can buy the same plane
new and upgrade it as they choose making the fair market value approach
list prices.

This is NOT a new aircraft. It's a 1974 aircraft that they've been
overhauling.

OK, the IRS says in Reg Sec. 1.74-1(a)(2) that the "taxable amount is the
prize's current Fair Market (resale) Value (FMV)". This is in Section 1384
of RIA's Federal Tax Handbook for 2005. So, you would be able to use a
competent Appraiser's appraisal for valuation purposes. Be forewarned that
you will probably be audited so you'd better have used a good appraisal.


Trip