Aircraft tax question

BTIZ wrote:
ok... I'm not a tax expert... but when you sell a car.. what taxes apply to
the seller..
is it a capital gains or loss.. if you intend to take a capital gain/loss be
sure to factor in depreciation

I can't ever imagine it being a gain, unless it's an antique bird that has
really appreciated in value..


You only have to worry about depreciation that was deducted (if you used
it for business). Otherwise your gain is the sales price (less any
expenses involved in the sale) less the purchase price less any capital
improvements you made to the aircraft.

If you've held the aircraft for more than a year you owe 15% of the
gain.

Just don't make the mistake of selling the aircraft to a related party (son,
father, cousin, etc.). In that case the gain is "ordinary" and subject to
whatever your marginal rate is.

"Ron Natalie" wrote:

If you've held the aircraft for more than a year you owe 15% of the
gain.

On Sun, 13 Nov 2005 02:35:13 GMT, George Patterson
wrote:

Ok, I know we have some tax experts out there. Tell me. When you sell an
aircraft, what taxes apply to the seller? Is this a capital gains/loss
situation? We're talking about an aircraft owned by and registered to a private
individual and used for pleasure.

George Patterson
Drink is the curse of the land. It makes you quarrel with your neighbor.
It makes you shoot at your landlord. And it makes you miss him.

Your 1/2 right. My understanding is that the gain on a sale of an asset
held for personal use is includable in your income; however, any loss is
not deductible, except in the case of casualty or theft.

:-((

Don't forget that it is only the gain that is taxed. That is the
difference between your net receipts on the sale less the basis.
Calculating the basis may or may not be tricky, and, depending on your
situation, may warrant a discussion with someone who knows what he or she
is talking about :-))


Ron (EPM) (N5843Q, Mooney M20E) (CP, ASEL, ASES, IA)

"Ron Rosenfeld" wrote in message
...
Don't forget that it is only the gain that is taxed. That is the
difference between your net receipts on the sale less the basis.
Calculating the basis may or may not be tricky, and, depending on your
situation, may warrant a discussion with someone who knows what he or she
is talking about :-))

I agree, talk with someone that knows about this stuff...

My aircraft could possibly be sold for about $5-10k more than I purchased it
a few years ago. Personally, I wouldn't claim the capital gain of all $5-10k
and would figure out what all (money-wise) I have put into it to calculate
the cost basis.

N93332 wrote:

"Ron Rosenfeld" wrote in message
...

Don't forget that it is only the gain that is taxed. That is the
difference between your net receipts on the sale less the basis.
Calculating the basis may or may not be tricky, and, depending on your
situation, may warrant a discussion with someone who knows what he or she
is talking about :-))


I agree, talk with someone that knows about this stuff...

My aircraft could possibly be sold for about $5-10k more than I purchased it
a few years ago. Personally, I wouldn't claim the capital gain of all $5-10k
and would figure out what all (money-wise) I have put into it to calculate
the cost basis.



You can't count routine repairs as part of the basis. Only "improvements."

--
"You can support the troops but not the president"
--Representative Tom Delay (R-TX), during the Kosovo war.

George Patterson wrote:

Ok, I know we have some tax experts out there. Tell me. When you sell an
aircraft, what taxes apply to the seller? Is this a capital gains/loss
situation? We're talking about an aircraft owned by and registered to a private
individual and used for pleasure.

I cannot imagine any US federal tax scenarios applying in this case unless
the aircraft was depreciated. Normally that doesn't happen unless the
aircraft is flown for some business purpose.

--
Peter
Not a tax accountant but uses an aircraft for business and depreciates it.























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"George Patterson" wrote in message
news:BDxdf.1644$Pa4.1059@trndny01...
Ok, I know we have some tax experts out there. Tell me. When you sell an
aircraft, what taxes apply to the seller? Is this a capital gains/loss
situation? We're talking about an aircraft owned by and registered to a
private individual and used for pleasure.

George Patterson
Drink is the curse of the land. It makes you quarrel with your
neighbor.
It makes you shoot at your landlord. And it makes you miss him.



If you did not expense the costs of flying and did not depreciate it, I
would be inclined to leave it off your tax return. Figuring out your cost
basis after years of ownership would be very difficult if not impossible.
You can't deduct the loss on sale as that loss would be attributed to your
(personal, pleasure) use. I would just figure that the basis was equal to
the sale price, which is probably true anyway after you figure out what you
spent over the years on upgrading. Now if you bought a P51 in 1970 for 10K
and it sat in your barn until you sole it yesterday for a $990K gain, that
might be different. The only aircraft that I have sold were used for
business and the cost basis was easy to determine. I ended up recapturing
the depreciation as a gain.

Mike
MU-2

"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.

"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.

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?

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?

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.

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?

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?

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.

Mike
MU-2

"Mike Rapoport" wrote:

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

The IRS has long ago ruled that paint on anything is not capital.
If a very fresh paint, one might argue on the concept of "fixing-up
expenses," if done after the intent to promptly sell was formed.

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?

Under long held principles of tax law -- yes. Add avionics from day
one to basis, even if a box is ripped out and sold on eBay for $1.
Even if gone thru 3 comms, trading in the old one each time.

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?

Depends if a repair was called for. Doesn't matter when done;
repairs do not add to basis. Else, a possible fixing up expense if
for purpose of sale. Don't know why somebody would replace working
servos just to better sell it, unless owner is an A&P maybe.

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?

No, it's a repair.

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

We don't prorate nuthin'. Even if you put 6,000 hours on the
plane, and did three majors at 2,000 hrs each, under tax law your
basis reflects a 4-engine airplane with one prop.

What if you had to do a top overhaul for $5K at 900hrs?

Sounds like a repair to me at only 900 on 2,000 TBO. No effect on
basis.

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.

No, the rules on what is capital vs. repair do not change, personal
or business asset. Tax law merely says no depreciation allowed for
personal use portion, including100% personal.

I think that there is so much ambiguity here.

No, it's very simple for a personal asset, because we don't worry
about the complexities of computing depreciation. For a personal
asset, you may capitalize basically big items not in the nature of
usual repairs. Except paint, which is a repair too.

Fred F.