Aircraft and taxes

[Brian Priest]

okay so here is the idea, I want to own a plane someday (sooner than later). Like every good pilot I need to “justify” my aircraft ownership. So here is my question:

What books or other resources are there that deal with the financial of aircraft ownership? Any books or resources on using an aircraft for business expenatures? Basically any resources that I can use to really financially justify owning (or even renting for that sake)?

Full disclosure, I do not own a business... yet. But if I gotta start one, even taking a loss, ile do it.

 

[EdFred]

There are none on the personal side. Just like there's no financial justification to owning a pool or a boat or ATVs or anything that's not food clothing shelter basic transportation. You do it because you want to not because you can financially justify it because I don't know anybody that can for a personal aircraft that is not primarily business use.

 

[Brian Priest]

Fair enough, so what resources are there for aircraft that is used n connection with a business?

 

[SkyDog58]

There are none on the personal side. Just like there's no financial justification to owning a pool or a boat or ATVs or anything that's not food clothing shelter basic transportation. You do it because you want to not because you can financially justify it because I don't know anybody that can for a personal aircraft that is not primarily business use.

I disagree. While there is no financial justification to personal flying per se, that is not the true issue. The issue is if you make a decision that flying is the recreational activity that you want to pursue then when is purchasing your own plane financially justifiable over renting. Humans need recreation and hobbies, and of course some are more expensive than others. If the cost of owning is cheaper than renting for a given amount of flying then owning is financially justified.

 

[Brian Priest]

Food for thought. Yes I agree at a certain cross over point, owning is cheaper. Im not looking to cook the books, but to take advantage of every bonus available in owning or renting. I just need to find those bonuses

 

[Ben2k9]

Fair enough, so what resources are there for aircraft that is used n connection with a business?

You can lease your plane out part of the time. That will put you officially in the aircraft leasing business. Then the purchase of the plane would get tax benefits, and your own training expenses could be a business expense. Ultimately, you would of course want to speak to an aviation/tax attorney.

 

[EdFred]

I disagree. While there is no financial justification to personal flying per se, that is not the true issue. The issue is if you make a decision that flying is the recreational activity that you want to pursue then when is purchasing your own plane financially justifiable over renting. Humans need recreation and hobbies, and of course some are more expensive than others. If the cost of owning is cheaper than renting for a given amount of flying then owning is financially justified.

Yes but a hobby is not financially justifiable that's all I was saying. There are ways to spend less on a hobby but generally there aren't any hobbies that are financially justifiable strictly from an economic standpoint.

 

[Sinistar]

So let's say @Brian Priest owns a small business. He also owns a plane but its in his name, not the business. Let's say he travels 20 times a year, each time spending $200 on fuel. Can Brian pay for all the fuel with his company money?

If his business owns the plane does he then need a commercial license? Does it then need 100hrs inspections. Can he depreciate the engine hours as a business loss?

 

[trenton]

but generally there aren't any hobbies that are financially justifiable strictly from an economic standpoint.

Cooking is all that comes to mind. You can actually save money vs the alternatives.

 

[trenton]

So let's say @Brian Priest owns a small business. He also owns a plane but its in his name, not the business. Let's say he travels 20 times a year, each time spending $200 on fuel. Can Brian pay for all the fuel with his company money?

If his business owns the plane does he then need a commercial license? Does it then need 100hrs inspections. Can he depreciate the engine hours as a business loss?

Yes. No. No. Ask accountant, likely yes.

Sources: FAR 61.113, 91.409

 

[chemgeek]

Owning a plane will save you money...bwah ha ha ha ha! Sorry. An airplane is a convenience, but like most conveniences, it comes with a (big) cost. Kind of like buying a house to lower your taxes.

 

[EdFred]

Cooking is all that comes to mind. You can actually save money vs the alternatives.

Versus going out to eat most definitely. However I have made some very expensive dishes that could have made something similar for much cheaper but wouldn't been quite as tasty.

 

[Brian Priest]

Owning a plane will save you money...bwah ha ha ha ha! Sorry. An airplane is a convenience, but like most conveniences, it comes with a (big) cost. Kind of like buying a house to lower your taxes.

Exactly, I’m quite certain everyone here will agree that it comes at a big cost. That said, I’m trying to reduce those costs. Sure I could never fly a GA aircraft, and that would save me all sorts of money. Or I could rent and spend money. But at what point does owning save me money vs renting? It’s that Vs part that is interesting. A fwiw, I’m not looking to build time.

I post the question here because I know there are some crafty folks here.

 

[trenton]

But at what point does owning save me money vs renting? It’s that Vs part that is interesting.

In the scenarios I've looked at, owning "saves" money when you're flying more than 80-120 hours per year. The analysis doesn't try to put value on other benefits owning provides (availability, customization, long trips, owner's pride, etc.).

My advice: rent until you run into a problems/inconveniences. Then consider a club/partnership.

 

[rtk11]

Or I could rent and spend money. But at what point does owning save me money vs renting?

As others have said, owning is for convenience. This is a depreciating asset (annual maintenance, any squawks, service bulletins, oil changes, tire changes, hose changes, etc.) so if you’re concerned about minimizing costs, a flight club is going to apportioning costs across all of the other owners, thus giving you minimum costs of ownership. If you rent, you’re pretty much free and clear except for the rental costs itself.

If you really feel inclined to put this aircraft into a business for tax purposes, first you need to start a business with a profit motiv. You’ve already declared you don’t mind creating a business that will lose every year. The IRS isn’t going to like that and will probably inquire why your business isn’t turning a profit after a few years. As others have suggested, it would be easiest to put your plane to work for you instead by leasing it to a school. But like renting property, you're going to be paying for many repairs as students are rough on aircraft. If you’re not emotionally tied to the aircraft, this could work out as you can lease to a school with a minimum flight hour per month.

But rather than take the advice of folks on the forum (in a public setting), why not have a free consultation with an aircraft tax consultant? That’s going to give you some pretty customized advice for your situation.

 

[chemgeek]

In the scenarios I've looked at, owning "saves" money when you're flying more than 80-120 hours per year.

That's exactly right. If you do a little spreadsheet whatif-ing with fixed and hourly costs, you will discover that the cost per hour to fly starts to get competitive with renting as you get close to 100 hours per year for a well equipped and maintained light single. The fixed costs vary dramatically depending on the condition of the purchased aircraft. One that needs a lot of upgrades or fixing up will require more hours to amortize fixed costs.

Many owners will trade hourly cost for convenience and safety, however.

 

[Brian Priest]

Hey everyone, thank you so much for the advice and insight. @rtk11 you bring up some very detailed points. In my research so far you are absolutely correct. I most certainly do want to make money, difference between a 150 and a baron

 

[iamtheari]

Maybe I missed it. What type of business are you planning to start? Some are more likely to accommodate airplane ownership as a legitimate business asset than others.

 

[Twin_Flyer]

Why not get a partner or two? That will allow you to split the cost and still have decent availability

 

[aggie06]

The IRS isn’t going to like that and will probably inquire why your business isn’t turning a profit after a few years.

There are hobby loss rules that disallow losses for activities not engaged in for profit. Section 183 makes it a rebuttable presumption that you do not have the profit motive required if you lose money in 3 of the last 5 years, but if you’re not actually bringing in any revenue and have no plan to, it is pretty obvious it’s not a business.

You can also have issues with trying to take deductions for things that are not “ordinary and necessary” for your business. For example, if you are cutting grass in your Houston neighborhood and try to deduct expenses for a trip to Oshkosh to look at avionics, the Service would likely say that doesn’t qualify as ordinary and necessary. If, however, you’re running a grass cutting consultancy, maybe you’re doing research or trying to find more clients in Wisconsin, which might be ordinary and necessary.

Almost all of the tax issues rely heavily on facts and circumstances. As a result, you won’t find much in the way of specific guidance for hypothetical aviation situations. You could look at more general guidance on how single member LLCs work from a tax perspective, how compensation of owners works (W-2, distributions, etc out of LLCs and C or S Corps), and how leasing and rental transactions are treated for federal and state tax purposes. Sorry it’s not a more straightforward answer, but that’s why CPAs are worth their hourly rates.

 

[Ben2k9]

Quantify this: Buying a plane ranks among the coolest things you can do, ever.