Capital gains on personal aircraft sale

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RickC

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RIckC
Any lawyers here that know what is allowable when determining cost basis for a used aircraft? Thinking of selling my 172 and it's worth nearly double what I paid for it. The upgrades will obviously figure into the cost basis, and I would think acquisition costs (like prebuy) also. Lots of things have been replaced, but with newer/better components, so thinking that might be allowable since it's something that is actually sold with the plane. Guessing maintenance to keep it flying wouldn't be since it's not a business asset with depreciation and deductible expenses. Anyone know for sure?
 
Have to wonder how they handled my Maule, as I was the first owner in 30 years to pay more than $1 for it.
 
MauleSkinner said:
Have to wonder how they handled my Maule, as I was the first owner in 30 years to pay more than $1 for it.
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The IRS takes a dim view of that. The $1+OVC may work with some state tax people (though many will impute the blue book value if you don't give them a number that seems right), the IRS isn't fooled.

To answer the question, the prebuy is a gray area in my opinion, but the things like escrow fees, brokerage, advertising to sell, all count. Even anything you did to spiff up the plane (detailing, etc...) right at the time you were marketing it counts.

No maintenance is not (even if it was a business expense). Depreciation isn't even if you could (in fact, depreciation works the other way. If you were allowed to depreciate it, you have to recpature that depreciation whether you took it or not).
 
Don't tell them. The IRS is so understaffed and behind right they won't catch you. Assuming you haven't taken depreciation on it. If you do get caught just claim ignorance and pay the penalty.
 
MauleSkinner said:
Have to wonder how they handled my Maule, as I was the first owner in 30 years to pay more than $1 for it.
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I pulled every bill of sale for my plane and every single seller sold it for a dollar.
My seller gives me the bill of sale showing full price.

Wonder if that is going to make it hard for me too sell for a buck when I'm done with it.
 
Getonit said:
Don't tell them. The IRS is so understaffed and behind right they won't catch you. Assuming you haven't taken depreciation on it. If you do get caught just claim ignorance and pay the penalty.
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Do you feel lucky? Well do you?
But @Getonit is probably correct in his assessment. I’d depreciated mine as a business expense so I had to take the gains when I formed the partnership.
 
Morgan3820 said:
Interesting thought, but I doubt the IRS looks at that website.
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Of course they don’t. But, they don’t care that my favorite salad dressing went from 92¢ to $1.48 either, not to mention gas prices, so they are out of touch with reality.
 
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Getonit said:
Don't tell them. The IRS is so understaffed and behind right they won't catch you. Assuming you haven't taken depreciation on it. If you do get caught just claim ignorance and pay the penalty.
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The only problem with that approach, is that the interest and penalties alone can be... surprising.

I've been audited once. And the IRS does not care if you're ignorant. Or if it was an honest mistake.
 
Hard to make much profit on a $1.00 sale. For tax purposes the county doesn't buy that and will assign a value based on their own research even if it was actually purchased for $1.00.
 
RyanShort1 said:
Gains? The gains aren’t even real, since the money is worth less in buying power. Look at www.coinflation.com if you aren’t sure.
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There was actually a proposal to exempt inflation amounts from capital gains during the last Administration, but it ended up not going anywhere. This idea really needs to happen since otherwise inflation is a backdoor tax increase on everyone when the government inflates our money away and you sell any of your assets.
 
donjohnston said:
I've been audited once. And the IRS does not care if you're ignorant. Or if it was an honest mistake.
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Not to be contrary but my understanding is that they do care. It might make the difference between criminal charges or simply penalties and interest. Open to corrections, but that's what I was told.
 
You guys are scaring me now, is this for business owned airplanes?
The IRS has not been told of my airplanes and has not taxed me on them.
The state (TX) nor the county (rural) has never taxed me on my airplanes - they were all occasional sales - no broker involved and I personally don't hold a sales tax certificate (if any of those last three were otherwise, yes there would be sales tax)
 
So let's think about trying to skirt the IRS. This administration just started tracking bank transactions over $600. They want to hire 80,000 more agents because the figure they will be able to collect an additional $400 billion in uncollected taxes.

It's not a good time to be messing around trying to not pay taxes you owe. An unpaid capital gains tax on an airplane sale is a good size score for the average agent, plus interest and penalties. Pay your taxes people.
 
Let'sgoflying! said:
You guys are scaring me now, is this for business owned airplanes?
The IRS has not been told of my airplanes and has not taxed me on them.
The state (TX) nor the county (rural) has never taxed me on my airplanes - they were all occasional sales - no broker involved and I personally don't hold a sales tax certificate (if any of those last three were otherwise, yes there would be sales tax)
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Did you register your airplanes? The IRS knows, they just haven't gotten around to you yet.
 
PaulS said:
Did you register your airplanes? The IRS knows, they just haven't gotten around to you yet.
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The last one I sold had been bought by me in 1999. Still no word. I guess they really are behind.
 
PaulS said:
You may be good. Personally, I just pay, been audited before, not a fun experience.
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What exactly are you paying to the IRS for your airplane?
What is the name of the tax? Is it Cap Gains?
Is it in a biz name or personal plane?
 
Let'sgoflying! said:
What exactly are you paying to the IRS for your airplane?
What is the name of the tax? Is it Cap Gains?
Is it in a biz name or personal plane?
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I don't own an airplane, but I've sold many assets although most depreciated.

If you sell an airplane for more than you bought it, that's a gain for most people or businesses. It must be reported, even if you sold it to a friend.

Most typically it's either a short or long capital gain unless selling airplanes is you business.

People writing a bos for 1 dollar to cheat the irs, that's exactly what the irs looks for. Not worth it imo.
 
My mother, who grew up in the great depression. When people complained about income taxes, she responded with “ if you have to pay income tax that means you have income. Count your blessings”
 
Personal aircraft? I bought plane for $X. I sold plane for $Y. $Y - $X = Capital Gains reported on your income tax form next spring. Is is really more complicated than that?

The upgrades will obviously figure into the cost basis, and I would think acquisition costs (like prebuy) also

I don't see how that could, but others who've done this can chime in. When you sell your house do you put in the home inspection, the real estate fees, recording fees, attorney fees, title search, paint from Home Depot, replacing the window blinds, etc. into the base?
 
Morgan3820 said:
My mother, who grew up in the great depression. When people complained about income taxes, she responded with “ if you have to pay income tax that means you have income. Count your blessings”
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My parents also lived through the depression but had a slightly different take on things.... Why is it ok for the government to charge me taxes for the same thing repeatedly? New items, sure. The increased value on things considered as investments, maybe. But seriously.... gas tax to fix roads and tax on car tabs to fix roads (still unfixed but the money actually goes for firefighters, police, schools, etc), property taxes for schools that are voted into being by non property owners (that don't pay those taxes) and people without kids in the schools they are voting for.

I could go on and on and on about double taxation but I just want honesty in the tax code. No, don't over tax people with more money than I have (I'm not jealous), just tell me what the taxes are actually used for.
 
NealRomeoGolf said:
So all tax except an income tax is dishonorable?
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I'd rather just have a VAT on new items and call it good. Taxed once. No taxes for manufacturing (there usually aren't) or corporate taxes. No income taxes, since people get to define income differently. Just pay taxes once. Buy a used car? No tax necessary as it was taxed on original purchase. Property taxes are similar, in that you never get to own your own home, you get to lease it from the state. Obviously that presents problems with some essential services (police/fire/etc) but there are work-arounds for that. You want to lower your tax burden? Buy less "stuff" or buy used. Wealthy people will naturally pay the highest share because they like new stuff and expensive stuff.
 
Bills of sale don't mean anything to the IRS. While they haven't done it yet, it would be pretty trivial for them to scan the registration changes at the FAA looking for unreported gains. Believe me, the Commonwealth of Virginia certainly does that to come after you for use tax. The bogus $1 claim on the bill of sale will mean nothing to them. They'll assume you sold it for FMV (and you had your $1 basis) until you convince them otherwise. Believe me, I've been through this on other assets. It's a bit unnerving when the IRS starts sending you letters demanding a quarter of a million dollars. Fortunately, I had a good accountant to go set them straight.
 
Jim K said:
What ****es me off is that you're expected to pay capital gains on personal assets, but not allowed to deduct losses. That's BS.
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I would guess the defense to that is personal assets are meant to decline. When you unexpectedly get one to appreciate it, you gotta pay the piper.

My view on taxes: I would love something simple. They have to exist or else you have no roads and you have no national defense. There are things I really appreciated over in Germany like no VAT on used cars. They also had much lower property taxes. But their income tax rate would make you sing the Star Spangled Banner really fast.

Edit to add: I believe in living honestly under whatever government structure I reside. Except maybe speed limits. ;) I've said this on here before: I'd be a really poor (in the money sense) tax accountant because everyone would know I wouldn't find the gray area loop holes for them.
 
If you want to deal with a tax question talk to a CPA not a payer. Taxes are a CPA specialty.

I suspect the the change of ownership will be reported by the FAA to the IRS and to the state tax department of the new owner. Capital gains are taxed whether or not your plane is a business. However, state sales tax can be quite high and would be on the entire amount not just on the gain. The purchaser of the plane will probably be taxed but, in many states, incidental sales by individuals are not taxed. But if the sales goes through a dealer it may be taxed.
 
SoonerAviator said:
I'd rather just have a VAT on new items and call it good. Taxed once. No taxes for manufacturing (there usually aren't) or corporate taxes. No income taxes, since people get to define income differently. Just pay taxes once.
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Well, I live in a country like that, a so-called tax haven. We have no taxes for the greatest majority of situations, except for an import tax. And since my country is an island, we import everything and everything gets taxed, including the shipping costs. Anything we buy in a shop has already been taxed once, and the shops apply very generous markups. Thanks to the system, we consistently are one of the two or three most expensive places to live in the world. Would I change with a 'normal' country? No way, I love that I don't have to file a tax report or keep receipts. And strangely enough, aircraft parts are exempt from import taxes. I keep thinking that I have to find out what they would consider a fast build RV10 kit. I suppose I could pretend it's aircraft parts and get it tax free...
 
WDD said:
Personal aircraft? I bought plane for $X. I sold plane for $Y. $Y - $X = Capital Gains reported on your income tax form next spring. Is is really more complicated than that?

The upgrades will obviously figure into the cost basis, and I would think acquisition costs (like prebuy) also

I don't see how that could, but others who've done this can chime in. When you sell your house do you put in the home inspection, the real estate fees, recording fees, attorney fees, title search, paint from Home Depot, replacing the window blinds, etc. into the base?
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Yes, except for the paint and window blinds. Improvements (but not maintenance), along with expenses related to buying and selling, can be added to your basis. (Full disclosure: I'm not an accountant, so don't take my word for it. )
 
Let'sgoflying! said:
Not to be contrary but my understanding is that they do care. It might make the difference between criminal charges or simply penalties and interest. Open to corrections, but that's what I was told.
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I did not imply that ignorance would result in criminal prosecution.

Only that the person would still be on the hook for penalties and interest. Which by the time the IRS gets around to finding the discrepancy could be a significant amount of money.
 
Add up ALL you expenses. Every dollar decreases tax liability. Consider all maintenance & storage costs.
 
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