Airplane LLCs and their tax implications

[Star Keeper]

I'm looking at purchasing my first aircraft and would be up for a possible partnership with it. As such I'm going to put it into an LLC on purchase in order to make bringing on a partner easier as I won't have to move the aircraft into an LLC and do a re-registration etc. What I'm trying to figure out is since this would not be structured for profit how do you file taxes without triggering the hobby vs business concern with the IRS? The way I'm looking at structuring it is to calculate for an hourly cost towards overhaul, hobbs related maintenance (oil changes etc) and to do a 50% split with regard to the fixed fees with some sort of monthly contribution schedule. Are those contributions by the owners considered income or are they capital contributions? Basically I would expect that since the LLC isn't business related there would be no listed income and no deductions which means you would never trigger the Hobby vs Business concern and all is well. I'm just trying to understand the book keeping aspect of it all.

I do have an appointment to talk to my CPA on some of this and when we get closer to the process I'm going to work with an aviation lawyer to set it up correctly but figured it wouldn't hurt to ask here.

 

[aggie06]

If you’re the sole member of the LLC, it will be disregarded as a separate entity for federal purposes. Nothing to file but you’ll want to track your basis and all costs. When you bring on a new partner, the LLC springs to life as a partnership for federal purposes and could require a partnership return. There are some practically expedient ways to handle it, but the “right” answer probably requires some bookkeeping and a separate return.

Not sure what state you’re in, but that’s another ball of wax. Most follow the federal treatment but I’m not a state tax guy.

 

[Bell206]

I do have an appointment to talk to my CPA

This is where to start. LLCs are created under state law and each state has their own rules. As to the IRS, depending on how you tax structure your LLC for income purposes it can be treated differently. I have 2 LLCs which I have structured differently in the past based on the recommendations my CPA offered at the time. And getting advices from an aviation attorney is a good route when setting up an LLC specifically for an aircraft as there can be some details that should be addressed since you plan to go the partnership route.

 

[bcg-63M20C]

If it’s just for ease of moving partners in and out, consider setting it up in a trust. It’ll accomplish the shared ownership you’re after and also avoid the reporting burdens of an LLC.

I would talk to an attorney about what structure best meets your needs before going to a CPA, I think there are solutions for you that won’t require setting up a taxable entity.