AOPA Plane Giveaway and Taxes

TaxSrv wrote:
"Ron Natalie"wrote:
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.

The IRS has no basis in case law to enforce MSRP on a car,

Sorry Fred, but if you are really a tax expert, you should do
some research into the issue. The MSRP *IS* what the IRS
values a new car winning as .

Peter R. wrote:
"Robert M. Gary" wrote:

That doesn't effect the amount of taxes you pay on it, just when you
pay the taxes.

Accelerated depreciation expense will most likely offset a good portion of
any income tax owed on the awarded aircraft, assuming both events occurred
during the same tax year.

If the capital asset doesn't really depreciate to match, you will have
to recapture that depreciation deduction. Chances are you'll still
come out ahead though.

wrote:

Since you can only take depreication against the basis (or cost to put
into service), and since her basis would be $0 since she got the plane
for free, I can't see the point of this strategy.

What if the recipient's s-corp purchased the aircraft for the business?
Wouldn't that establish a basis?


--
Peter

You come out ahead because a dollar today is better than a dollar
tomorrow. However, in the end, the thing will depreciate as much as it
will depreciate. Taking accelerated depreciation just means you can
capture that depreciation faster. Its just a paperwork thing. When you
sell it, any gains get recaptured and you end up paying back any
acceleration.

-Robert

Why buy it from the recipient? Why not just pick up trade-a-plane and
buy a plane? If your corp is going to buy a plane, winning one by the
owner doesn't effect anything. The owner still pays all taxes from the
winning.

Depends on the state of residence. Those who only pay federal taxes
will get off pretty easily. Here in the People's Republic of California
we pay 8%+ sales/use tax, then 1% every year in property tax. Add to
that state taxes on the fuel and tie down you are using.

-Robert

What if the recipient's s-corp purchased the aircraft for the business?
Wouldn't that establish a basis?

BTW: In California we have a minimum tax for S-corps, C-corps, LLC, etc
of $800/yr. You would have to pay the $800/yr for the privilege of
being incorporated.

-Robert

Peter R. wrote:
wrote:

Since you can only take depreication against the basis (or cost to put
into service), and since her basis would be $0 since she got the plane
for free, I can't see the point of this strategy.

What if the recipient's s-corp purchased the aircraft for the business?
Wouldn't that establish a basis?


Sure, for the s-corp. But the recipient will still have to pay taxes
on the FMV of the plane that she received for free and sold to the
s-corp. That FMV will be what the s-corp paid her for it, unless that's
obviously a sham price below book value in which case she would
probably have to pay taxes on book value.

..

Robert M. Gary wrote:
You come out ahead because a dollar today is better than a dollar
tomorrow. However, in the end, the thing will depreciate as much as it
will depreciate. Taking accelerated depreciation just means you can
capture that depreciation faster. Its just a paperwork thing. When you
sell it, any gains get recaptured and you end up paying back any
acceleration.


Unless tax rates have changed since I had depreciable property about
two years ago, you may also come out ahead because the depreciation
recapture rate is 25%, but when you were depreciating you may have been
taking the depreciation deduction against income in a higher bracket
like 28% or 33%.

Of course as noted elsewhere in this thread, that won't help with the
winner of this plane because you can't take depreciation against an
asset you got for free.

"Ron Natalie" wrote:
The IRS has no basis in case law to enforce MSRP on a car,

Sorry Fred, but if you are really a tax expert, you should do
some research into the issue. The MSRP *IS* what the IRS
values a new car winning as.

Just where do I begin to research such a unique exception to basic
principles of property valuation? It ain't in statute, and
therefore not in Regs. Perhaps a Tax Court judge ruled once this
way because no one ever told him he doesn't really have to pay
sticker for his cars?

What is true is that prize-awarding organizations, who often don't
pay street retail for it, place MSRP on the 1099 because they feel
they have no way to determine average retail price. Fair enough.
But nowadays they have edmunds.com for a pretty fair, if not a bit
high, street value by region and even color. They just have to
convince themselves that's acceptable for IRS reporting.

Fred F.