Disadvantages / Advantages in buying an LLC to own a plane, in CA?

[bluesideup]

Hi everyone.
Is it better to buy an LLC that has a plane as a single asset fully depreciated, assuming you do not intend to depreciate..?

Just buy the plane and create your own LLC?

Just buy and keep the plane in your name. No LLC..?
Advantages disadvantages.

Protection, Tax, ability to continue to keep maintain a hangar in an airport with hangar waiting list...?
Thank you.

 

[MountainDude]

I recommend you read LLC for dummies. It's a very nice summary of pluses and minuses.

 

[Jeff Oslick]

1) Talk to a CPA and an attorney
2) The principal advantage of buying the LLC with the airplane as the sole asset is that you would not pay use tax on the purchase.
3) If you're going to be the sole owner, you don't need an LLC, and if it is depreciated already, there is no tax advantage.
4) If you keep it in the LLC, you'll have to pay $800/yr to maintain the LLC, plus the cost of accounting/tax filings for the LLC every year.
5) As far as keeping the hangar, that is a discussion to have with the airport. Hangar waiting lists are typically based on a person, not a company. Depending on the airport, they may just let you sign a new lease under your name, but maybe not. Depends on the transferability language in the lease.

 

[cowman]

If you're a sole owner I'm pretty sure the only thing an LLC is going to do for you is obscure your name. If you get sued for a liability issue as a single owner someone can still go after your personal assets. Insurance is what you want to protect yourself from that.

 

[midlifeflyer]

Generally speaking, the only protection an LLC will provide to a sole owner who never rents or lends out the airplane is potentially to the airplane as an asset, and that varies quite a bit from state to state. If you cause an accident, you are responsible, and your assets are subject to being attached to meet your obligations. And if the state imposes owner liability for accidents, both you and the LLC are responsible. There is some theoretical protection to you personally for contractual debts but that's extremely limited, practically speaking, in the sole owner/aircraft situation.

Buying an existing LLC means you are also buying whatever debts that LLC might have, whether you know about them in advance or not. There's a reason that many major business buy-outs are styled as an "asset purchase" rather than a "stock purchase."

Whether you would get some tax or other financial benefit is a discussion to have with your accountant. Whether there is some asset protection benefit to segregating the ownership of the aircraft from your other assets is a discussion with your estate/financial planning professional.

 

[Sac Arrow]

It's just too much hassle for 95% of us. If you are flying something with handles labeled "thrust levers" and there are two or more, it might be a different situation.

 

[bluesideup]

Hi everyone.
Thank you for the feedback.
It looks like the there is No best approach to this.
Very likely the Keep it Simple, just buy it and keep it on your personal name, unless you want to keep some (percived) privacy, may be the best.
It will approximately cost around $1,500.00 / month from what I can approximate so far.

 

[mandm]

Hi everyone.
Is it better to buy an LLC that has a plane as a single asset fully depreciated, assuming you do not intend to depreciate..?

Just buy the plane and create your own LLC?

Just buy and keep the plane in your name. No LLC..?
Advantages disadvantages.

Protection, Tax, ability to continue to keep maintain a hangar in an airport with hangar waiting list...?
Thank you.

100% to use a LLC, for privacy purposes alone. N number registry will display the owners name.

Most of the times when you search a N number, you get someone’s name, and then you search that persons name and you quickly see their profession (Dr Blue or Lawyer Blue), age, phone number, address and value of real estate owned. That’s in about 30 seconds of using Google. So you now become a target and of course you’re going to have a ****ed off customer somewhere and now a lawyer will take on the case pro bono as they are definitely cashing out from you.

If you depreciate the value of the asset then you need to pay that back when you sell it. It is basically a temporary discount. Depending upon the value, it might not be worth it. If it’s expensive, you’re going to have insurance.

Form an LLC in a privacy friendly state with tax benefits and of course this depends on where you live (if a use tax applies). There’s a reason that Delaware and I remember watching a documentary that talked about a poor town in Texas that has the most number of jets registered compared to anywhere else.

LLC ongoing costs are not expensive, and you are not required to file any returns if it’s just holding your asset. You can start an LLC with $50-100 in most states and ongoing costs are filing out a form with your registered agents name and address ($25-50/year) and paying a fee to the state for the LLC, again from $0-50 per year usually. Avoid California ($1000/yr fee+).

 

[bluesideup]

Hi Michael and everyone.

Avoid California ($1000/yr fee+).

That is the Big problem CA is where it has to be kept. The $800.00 / yr for LLC cancels some of the taxes that you do not have to pay?
I think that you are correct about filing, you can ignore it but some CPAs say that it can cause some issues?

The Privacy is a good point but some people find that is easy to get around, at least in some states, unless you request t remain private in some way?
Thanks again everyone.

 

[mandm]

Hi Michael and everyone.

That is the Big problem CA is where it has to be kept. The $800.00 / yr for LLC cancels some of the taxes that you do not have to pay?
I think that you are correct about filing, you can ignore it but some CPAs say that it can cause some issues?

The Privacy is a good point but some people find that is easy to get around, at least in some states, unless you request t remain private in some way?
Thanks again everyone.

You do not need to have a California LLC, you can choose a more favorable state. Aircraft registration is at the federal level. Only California LLCs have that tax. You can have a Delaware LLC for your airplane based in California. Now you may be subject to a use tax in California (I don’t know the rule) but a lot of jet owners refuse to pay those taxes and I’m not sure what happens. Some states end up forgiving those unpaid use taxes and from what I read is they go unpaid. But the point is, there is a way around the $800 fee by not forming a California LLC.

I’m pretty sure that California LLC’s are not private so that is not desirable anyway. You pick a state where the members are not disclosed, only the registered agent and their address. That retains your privacy. The registered agent only has the information that you provide and would disclose that upon a court order. The owner could be another company to make it even more difficult to track. That’s up to you. But this is not something that is online or searchable by Google, that’s the main point.

As for taxes, for a holding company with no revenue, no return is due. In fact you do not even need to apply for an EIN so there is no record with the tax man.

 

[bluesideup]

Hi @mandm and everyone
Thank you for your time and help.
It is not very straight forward or easy to navigate.
Someone had said to just create a DBA with the City and a business name, and register the plane in the name of the business.
There are still some charges, I think around $100.00 / yr to maintain it but I am not sure how useful that would be? That would most likely be just throwing away money?
Thanks again everyone.

 

[mandm]

Hi @mandm and everyone
Thank you for your time and help.
It is not very straight forward or easy to navigate.
Someone had said to just create a DBA with the City and a business name, and register the plane in the name of the business.
There are still some charges, I think around $100.00 / yr to maintain it but I am not sure how useful that would be? That would most likely be just throwing away money?
Thanks again everyone.

New Mexico LLC is $50 to start, if no revenue then no annual report or fees due, registered agent and business address is $39/year.

Thats one example.

 

[bluesideup]

Hi mandm.
Yes, that may be more efficient but I am not sure what would be involved in the long term? CA does not recognize some of the other States LLCs when it come to charges, taxes...

 

[mandm]

Hi mandm.
Yes, that may be more efficient but I am not sure what would be involved in the long term? CA does not recognize some of the other States LLCs when it come to charges, taxes...

Then I guess you don’t need to pay any bills from CA lol

 

[flyingron]

You do not need to have a California LLC, you can choose a more favorable state .

If a foreign (meaning formed in another state) LLC operates in California, they still owe the franchise tax ($800 minimum).

The poster don't seem to understand depreciation. If you buy something it doesn't make rats ass difference whether the previous owner depreciated it. He likely has to "recapture" the depreciation, the difference between what it was depreciated down to and what he actually sold it for.

You start with your new basis (what you purchased it for). Depreciation isn't something that's optional. If you are using the asset in a way that is depreciable, you must depreciate it (or the government will treat it like you did anyhow). I'm not seeing how having a personal use aircraft (not rental, not any sort of legitimate business use) is depreciable at all regardless of how it is owned.

 

[bluesideup]

Hi Ron and everybody.

You start with your new basis (what you purchased it for). Depreciation isn't something that's optional. If you are using the asset in a way that is depreciable, you must depreciate it (or the government will treat it like you did anyhow). I'm not seeing how having a personal use aircraft (not rental, not any sort of legitimate business use) is depreciable at all regardless of how it is owned.

At this point there is no intention to depreciate, on the buyer's side, just to be used for a personal use, enjoyment.
The qualifications exist to be used as a business / training but there is no intention at this point, unless that is the best / only way to get things started in the most efficient way. There is already a business name (DBA) that can be used at the city level, which was never used?

One of the goals is to see if using the LLC will facilitate the retention / continue the lease, of the hangar at the airport. I think I know the answer to that already, it depends on the lease agreement, which I think will not allow that if the Agent / Manager changes regardless if you buy the LLC or not, unless we can both be continue with the LLC in some way?

I think that the best approach would be to just put it on the personal name and move on, things are getting way too complicated to start with and it's difficult to predict what may come up in the future. One of the problems is that the plane, CTLS, is not manufactured in a way that it can be kept outside without damaging it, and there is no hangar space available. Carbon fiber with tape at the joints, not an all seasons acft, dry Wx only....
Thanks again everybody.

 

[midlifeflyer]

One of the goals is to see if using the LLC will facilitate the retention / continue the lease, of the hangar at the airport. I think I know the answer to that already, it depends on the lease agreement, which I think will not allow that if the Agent / Manager changes regardless if you buy the LLC or not, unless we can both be continue with the LLC in some way?

Change of underlying ownership of a new closely-held entity as a termination or default event is a fairly common provision in many contracts, but not always there.