Okay, short answer for the USA. (I don't know
Canadian law).

If you sell an airplane, homebuilt or not, for
more than you paid for it the difference is
"capital gain" and you have to file a Schedule D
with your 1040 at tax time.

[longer explanation]
A lot of people incorrectly believe that capital
gains only applies to investments or real estate.
It does not. It actually applies to anything
you buy and resell including for example guns,
art, furniture...

In most cases it is assumed that what you buy will
have depreciated, and you will sell it for less
than you paid for it, and in that case you have a
capital loss, not a capital gain. Capital losses
can only be written off against capital gains
except for $3000.00 per year which can be written
off against ordinary income.

Now back to the airplane. What did you actually
pay for it? Well obviously you have to add up all
of the materials and avionics, paint, etc. If you
had someone else paint it and you paid them to do
it, that is part of your "cost basis". If you
paid someone else to overhaul the engine you can
add that to your "cost basis". However, you
cannot increase your cost basis by any of your own
labor and you would not want to even if you could,
because then the amount that you said you paid
yourself would be ordinary income instead of
capital gains, and you would owe self-employment
tax and your marginal ordinary income rate on that
amount. It would almost certainly be higher than
the current rate for long term capital gains. (I
believe that it is 15% currently).

If you want more information about capital gains
tax, see the following links

http://www.irs.gov/taxtopics/tc409.html
http://www.irs.gov/newsroom/article/...106799,00.html

you can also download the instructions for
schedule D directly from the IRS website

Don W.

J.Kahn wrote:
Ron Natalie wrote:

wrote:

A question came up over pizza the other night.

What are the tax consequenes of selling a homebuilt?

Assume we know how much the raw materials cost.
Assume we know approx how many hours of labor went into it.

Assume the homebuilt is worth $200K

If it is sold what are the tax implications?


Labor (unless you paid someone to do the labor)
has no bearing on the issue. You are presumably
doing this for recreation or education, that is,
not as a business. You have a capital gain on
the difference between what you spent on the
materials and the what you sold it for. If you
have a loss, however, that is not deductible.


I don't think capital gains applies there. The materials weren't
purchased as an "investment". I believe that the IRS or (Revenue Canada
up here) would have to see a pattern of construction and sales of
aircraft that would indicate that the activity is professional in nature
before they would consider the profits from the sale as income.

I would certainly not report the proceeds of a single aircraft built
over 4 years as income or capital gains any more I would over a car I'd
restored, unless I was doing it full time specifically as a source of
income.

John