Aircraft tax question

"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.

OK. I did not realize that *everything* gets added to the basis (even if it
was thrown away year ago and you arn't even selling it when you sell the
airplane.) I guess it makes some sense since the business user would have
deducted these costs over time.

Mike
MU-2


"TaxSrv" wrote in message
...
"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.

"Mike Rapoport" wrote:
OK. I did not realize that *everything* gets added to the
basis even if it was thrown away year ago and you arn't
even selling it when you sell the airplane.) I guess it makes
some sense since the business user would have deducted
these costs over time.

"Sense" has little to do with tax law, which has to also operate
its own way for practical enforcement, and timing tax receipts
today vs. tomorrow if Congress so desires.

Say you originally bot the plane with a Loran, and it stopped
working, so you removed and tossed it. Whether business or not,
there's no accounting loss, since you can't establish the % of
purchase price which was in the Loran. So Loran stays forever in
the basis.

However, if you bot plane and then added Loran for $1500, and sold
it for $100, then you have a business loss if this separate Loran
asset was not fully depreciated. Otherwise a taxable ordinary
gain. For a personal plane, you similarly take the Loran back out
of basis, but with no tax effect ever as to the $100.

However, if the Loran in a personal plane which you installed
stopped working, and you ripped it out and tossed, you're actually
supposed to take it back out of basis (purchase price of plane).

Back to if Loran was in the plane when you bot it, but you sold
working Loran for $100. Whether biz or not, just subtract $100
from basis of plane which forever includes the Loran. It really
all follows a few simple rules.

Fred F.

"TaxSrv" wrote in message
...

Say you originally bot the plane with a Loran,
However, if you bot plane and then added Loran for $1500,
Back to if Loran was in the plane when you bot it, but you sold

Do you mean _bought_ or are you using terminology I'm not familiar with?

His ISP charges by the character.

"Matt Barrow" wrote in message
...

"TaxSrv" wrote in message
...

Say you originally bot the plane with a Loran,
However, if you bot plane and then added Loran for $1500,
Back to if Loran was in the plane when you bot it, but you sold

Do you mean _bought_ or are you using terminology I'm not familiar
with?

"Matt Barrow" wrote:
Say you originally bot the plane with a Loran,

Do you mean _bought_ or are you using terminology I'm
not familiar with?


I remember it from way back, if not Accounting 101, in college
taxation texts. Short words and small money amounts like $10, in
examples, better focuses the mind on the concept.

Fred F.

So if I bought a damaged aircraft for $5000, repaired it, painted it, and
sold it for $50,000, I would be liable for taxes $45,000?

"TaxSrv" wrote in message
...
"Mike Rapoport" wrote:
OK. I did not realize that *everything* gets added to the
basis even if it was thrown away year ago and you arn't
even selling it when you sell the airplane.) I guess it makes
some sense since the business user would have deducted
these costs over time.

"Sense" has little to do with tax law, which has to also operate
its own way for practical enforcement, and timing tax receipts
today vs. tomorrow if Congress so desires.

Say you originally bot the plane with a Loran, and it stopped
working, so you removed and tossed it. Whether business or not,
there's no accounting loss, since you can't establish the % of
purchase price which was in the Loran. So Loran stays forever in
the basis.

However, if you bot plane and then added Loran for $1500, and sold
it for $100, then you have a business loss if this separate Loran
asset was not fully depreciated. Otherwise a taxable ordinary
gain. For a personal plane, you similarly take the Loran back out
of basis, but with no tax effect ever as to the $100.

However, if the Loran in a personal plane which you installed
stopped working, and you ripped it out and tossed, you're actually
supposed to take it back out of basis (purchase price of plane).

Back to if Loran was in the plane when you bot it, but you sold
working Loran for $100. Whether biz or not, just subtract $100
from basis of plane which forever includes the Loran. It really
all follows a few simple rules.

Fred F.

Steve Foley wrote:
So if I bought a damaged aircraft for $5000, repaired it, painted it, and
sold it for $50,000, I would be liable for taxes $45,000?

That's pretty much the way it works. If you hold it for a year, you are
taxed at the capital gains rate of 15% (plus whatever gouge your state
wants). If you sell it in under a year, you pay whatever your top
tax bracket is one the income.