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Tax consequences of selling a homebuilt.
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? |
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Tax consequences of selling a homebuilt.
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#3
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Tax consequences of selling a homebuilt.
wrote in message ups.com... 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? Don't know where you are but over here you'd sure have the VAT administration on your back. |
#4
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Tax consequences of selling a homebuilt.
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? For french "tresor public" : zéro euros By -- Pub: http://www.slowfood.fr/france Philippe Vessaire Ò¿Ó¬ |
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Tax consequences of selling a homebuilt.
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 |
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Tax consequences of selling a homebuilt.
J.Kahn wrote:
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. In the U.S., it is most definitely taxable if sold at a gain. The tax law does not distinguish between personal, business, or investment assets (except that a loss on sale of a personal asset is not deductible). Fred F. |
#7
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Tax consequences of selling a homebuilt.
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 |
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Tax consequences of selling a homebuilt.
J.Kahn wrote:
I don't think capital gains applies there. The materials weren't purchased as an "investment". Makes no difference in the US. 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. Absolutely false. |
#9
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Tax consequences of selling a homebuilt.
Ron Natalie wrote:
J.Kahn wrote: I don't think capital gains applies there. The materials weren't purchased as an "investment". Makes no difference in the US. 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. Absolutely false. Don explained it pretty good. Is it possible to have the aircraft appraised upon completion to establish a base line value, then pay gains tax on the increase from that upon sale? It seems grossly unfair to be taxed on the full difference between the original materials cost and the later sale price. For example, in Canada you don't pay capital gains tax on a personal residence but you do on income property. If you live in a house and then move out and rent it, capital gains applies only to the increase in value while it was a rental, not the whole time you owned it. Upon sale you have to have an appraiser do an historical appraisal to establish the house's market value at the time it became an income property. In the case of an aircraft you would establish the market value at the time it was completed and pay tax on the increase from that. John |
#10
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Tax consequences of selling a homebuilt.
J.Kahn wrote:
Is it possible to have the aircraft appraised upon completion to establish a base line value, then pay gains tax on the increase from that upon sale? It seems grossly unfair to be taxed on the full difference between the original materials cost and the later sale price. That's the wway it is. For example, in Canada you don't pay capital gains tax on a personal residence but you do on income property. In the US you owe capital gains on your residence, but there is an exclusion of $250,000 if it is your principle residence for 2 out of the last 5 years. There's no such exclusion for most anything else/ |
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