Capital gains on personal aircraft sale

Sifossifoco said:
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...
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Well, I'm not talking about being in a tax haven necessarily. Just a simplified tax structure. No need for taxes on income and every other thing. Just taxes on what you buy new at a store. That alone would eliminate any tax loopholes, or tax avoidance strategies only available to the uber wealthy. It would avoid tax incentives for buying one technology over another, or one company/developer over another. It would also cut the IRS size down to almost nothing, as the only thing that would be needed is the staffing to manage the business reporting of sales taxes received and audit anything necessary. Hundreds of millions of tax returns for people and businesses would be eliminated. The overall taxes paid would still be about the same (unless you can get Congress to quit spending/printing money), but that's a different subject.
 
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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Soon you'll have to pay taxes on gains even though you didn't and aren't selling anything......
 
donjohnston said:
I always thought that the Fair Tax was a good idea. Not perfect. Then again, what is? But it would appear that it never gained any traction.
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Agreed. The Fair Tax was a decent plan, but its main supporters at the political level were Libertarians and Independents, so it didn't gain support from the Bourgeoisie class as it probably would have taken away many of their tax advantages.
 
flyingron said:
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).
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Anything that improves or adds useful life to an asset would be a part of the cost basis of that asset. I would argue that maintenance could be added to the cost basis of a capital asset if the maintenance expenses were not used as an expense in any other places. For instance, you had to repair or replace certain equipment during the plane's last annual. If this were a business asset, those expenses for maintenance would either be capitalized and depreciated or expensed through a section 179 expensing election. Either way, the maintenance expenses would be a deductible expense against income. As a non-business asset, the same mindset applies in figuring out what maintenance items could reasonably be considered as improving or adding to the useful life of the asset. I would personally take as many of these expenses as you can and add them to the cost basis when computing any capital gains. I would not worry about a penalty if you were to be audited as there is a reasonable expectation that these things should be considered in the cost basis.
 
NealRomeoGolf said:
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.
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Is the use of loopholes not living honestly under the government structure where you live? I'm not talking about doing things illegally and hoping to get away with it. Those aren't loopholes. There are many loopholes that can be legally exploited. As long as the government continues to find new ways to waste the tax dollars already coming in, I think it only fair that the citizens exploit the loopholes that politicians have allowed to exist.
 
Kevin Eggert said:
Anything that improves or adds useful life to an asset would be a part of the cost basis of that asset. I would argue that maintenance could be added to the cost basis of a capital asset if the maintenance expenses were not used as an expense in any other places. .
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Not true. There are specific rules for such the life extension part. The usual extension yardstick is a year. You can't deduct stuff you have to do all the time (annual, oil changes). An engine overhaul on the other hand might be.

But the starndard is certainly not "IF I DIDN'T EXPENSE IT" I can treat it as an increase in basis. While expensing it precludes you from using it as a capital improvement, the reverse is NOT true.

Again, depreciation it the antithesis of increasing in basis. As a item is depreciated (or when it should have been depreciated), it is being consumed. This DECREASES your basis.
 
How can anyone have a gain after their first annual?
 
For most small aircraft with capable avionics and various STC upgrades (not repairs but value-increasing elecctronic, mechanical or interior upgrades), the cost of capital improvements plus the purchase price may likely far exceed the potential sales value. I' pretty sure I could claim a substantial capital gains loss on my airplane based on the purchase value of propeller, interior, engine, and avionics upgrades.
 
WDD said:
Soon you'll have to pay taxes on gains even though you didn't and aren't selling anything......
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That only applies to the extremely wealthy. Or as one person put it, "Why are Musk's assets not 'real' for taxes but real enough to buy Twitter?"

But seriously, talk to a CPA if its more than $5k. A 1hr consultation will cost less in the penalties and fines the IRS would charge.
 
wheaties said:
That only applies to the extremely wealthy. Or as one person put it, "Why are Musk's assets not 'real' for taxes but real enough to buy Twitter?"

But seriously, talk to a CPA if its more than $5k. A 1hr consultation will cost less in the penalties and fines the IRS would charge.
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Yeah, just like AMT. :rolleyes:
 
EdFred said:
Let's see, tip tanks, ADS-B, new cylinders, new exhaust, new radio, dual G5's, engine monitor, interior...

Yeah, even with crazy prices now, ain't gonna be no capital gain.
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New cylinders wouldn't count. Neither would a new exhaust.
 
EdFred said:
Says why? A new engine would. And new cylinders isn't "general maintenance"
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It would generally be viewed as incidental maintenance for tax purposes. In business, you can't count partial replacement of a roof as a capital expense. You have to replace the whole roof. I would say replacing one cylinder is the same as opposed to a full overhaul.
 
EdFred said:
But it wasn't a single cylinder. It was 6 of them. A "top overhaul" if you will.
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Sorry, I was thinking singular. I’d have to think on a top overhaul about which principle they would try to apply. It’s much easier in a business situation as opposed to hobby stuff.
 
NealRomeoGolf said:
Sorry, I was thinking singular. I’d have to think on a top overhaul about which principle they would try to apply. It’s much easier in a business situation as opposed to hobby stuff.
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I can't see it, unless it's a substantial improvement, like a bigger engine or upgraded avionics. And the rules for business property are different from personal.
 
A overhual is a overhual. It’s part of maintenance.
 
Mikey B said:
I can't see it, unless it's a substantial improvement, like a bigger engine or upgraded avionics. And the rules for business property are different from personal.
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From an accounting standpoint, the "materially extends the life" threshold may be easier to justify for an increase to asset basis. If you didn't do the top overhaul, the life of the engine may have been 500-1,000 hours less, which is material. I'm pretty sure you could justify that to an auditor at least in the business world.
 
So let's say 10 years ago you bought a Cherokee for $30k. Now you sell it for $70k. But you then buy a Mooney for $100k a month later.

Do you still have to pay cap gains on the 40k you gained on the Cherokee?
 
Jeff767 said:
A overhual is a overhual. It’s part of maintenance.
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But, it adds substantial value to the airplane. A plane sold 1800 SMOH is going to cost less than one with 500 SMOH. In my mind, that OH is now part of the cost basis for the airplane I sell.
 
I am fairly confident that capital gains tax on an aircraft sale is only due if the aircraft was used as a business or was a business asset. I have not found anything that says an owner of a personal use aircraft has to pay capital gains tax on the sale of their airplane. Now, depending on the state and how the aircraft is sold, the buyer may have to pay state SALES tax.
 
Rcmutz said:
I am fairly confident that capital gains tax on an aircraft sale is only due if the aircraft was used as a business or was a business asset. I have not found anything that says an owner of a personal use aircraft has to pay capital gains tax on the sale of their airplane. Now, depending on the state and how the aircraft is sold, the buyer may have to pay state SALES tax.
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That would be incorrect.
 
Rcmutz said:
I am fairly confident that capital gains tax on an aircraft sale is only due if the aircraft was used as a business or was a business asset. I have not found anything that says an owner of a personal use aircraft has to pay capital gains tax on the sale of their airplane. Now, depending on the state and how the aircraft is sold, the buyer may have to pay state SALES tax.
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I'm not an accountant, but I thought you are supposed to pay capital gains tax on any asset sales where you make money. That could be cars, boats, homes, cryptocurrency, antiques, collectibles, etc. The only asset that got treated special was investment real estate property where you could do a 1031 exchange and defer the capital gains tax by rolling over the investment into another like-kind investment. But everything else is a taxable event.

Edit: Fixed the IRS section number
 
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elvisAteMySandwich said:
I'm not an accountant, but I thought you are supposed to pay capital gains tax on any asset sales where you make money. That could be cars, boats, homes, cryptocurrency, antiques, collectibles, etc. The only asset that got treated special was investment real estate property where you could do a 1099 exchange and defer the capital gains tax by rolling over the investment into another like-kind investment. But everything else is a taxable event.
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You are mostly correct. I think most people forget about this type of gain because housing got a big break about 20 years ago when gains got exempted under most situations. Also, it isn't as common that you make money on personal assets that aren't investment vehicles.
 
Decades ago your personal residence was allowed to have the capital gain rolled into the next one you purchase and then there was a one-time exclusion when you turned 65. That was changed to the current scheme is that each person can exempt $250,000 ($500,000 for couples) of principal residence capital gain (subject to restrictions).

The other thing to note is that the long term capital gains rate is determined by your overall income. If you make less than $86,000 (or so, I'm not inclined to look up the number right now), you actually don't pay any. The problem most people don't realize is that the GAIN ITSELF gets added to the rest of your income for computing the threshold, so you can easily get bumped up into the 20% bracket.
 
flyingron said:
Decades ago your personal residence was allowed to have the capital gain rolled into the next one you purchase and then there was a one-time exclusion when you turned 65. That was changed to the current scheme is that each person can exempt $250,000 ($500,000 for couples) of principal residence capital gain (subject to restrictions).

The other thing to note is that the long term capital gains rate is determined by your overall income. If you make less than $86,000 (or so, I'm not inclined to look up the number right now), you actually don't pay any. The problem most people don't realize is that the GAIN ITSELF gets added to the rest of your income for computing the threshold, so you can easily get bumped up into the 20% bracket.
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The threshold to go from 15 to 20% is about $500,000. Most of us don't need to worry about getting there ...
 
NealRomeoGolf said:
That would be incorrect.
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Like I said, I was not able to find anything via googling the question. Most hits dealt with business aircraft and depreciation. Can you post a reference here for the rest of us?

I found this...”Commercial aircraft are capital goods, because they are used by airlines to provide a service: transportation. An airplane used by private pilots for weekend hobbies is a consumer good. That same type of plane used for a sightseeing business is a capital good.”

From this article written in 2022.

https://www.thebalance.com/capital-goods-examples-effect-on-economy-3306224.
 
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Rcmutz said:
Like I said, I was not able to find anything via googling the question. Most hits dealt with business aircraft and depreciation. Can you post a reference here for the rest of us?

I found this...”Commercial aircraft are capital goods, because they are used by airlines to provide a service: transportation. An airplane used by private pilots for weekend hobbies is a consumer good. That same type of plane used for a sightseeing business is a capital good.”

From this article written in 2022.

https://www.thebalance.com/capital-goods-examples-effect-on-economy-3306224.
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See post #2.
 
Rcmutz said:
Like I said, I was not able to find anything via googling the question. Most hits dealt with business aircraft and depreciation. Can you post a reference here for the rest of us?

I found this...”Commercial aircraft are capital goods, because they are used by airlines to provide a service: transportation. An airplane used by private pilots for weekend hobbies is a consumer good. That same type of plane used for a sightseeing business is a capital good.”

From this article written in 2022.

https://www.thebalance.com/capital-goods-examples-effect-on-economy-3306224.
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Here's another IRS link and I'll quote it.

https://www.irs.gov/taxtopics/tc409#:~:text=You have a capital gain,, aren't tax deductible.

"Almost everything you own and use for personal or investment purposes is a capital asset."
 
I read back through publication 551 to see what defense @EdFred could have on counting a top overhaul as a cost adjustment to his basis. I think he would pass the IRS sniff test assuming the top overhaul would make the engine last more than year before major overhaul. I sure hope a top would.

This is written more towards a business, but I would assume it applies.
"Increase the basis of any property by all items properly added to a capital account. These include the cost of any improvements having a useful life of more than 1 year."

Regular/routine maintenance would not count. Something big like a major overhaul or a top overhaul, in my opinion, would. It would be interesting to actually see what the IRS would say (but don't ask if you don't want the answer) since they specifically say partial replacement of a roof is not an adjustment to your basis. So is partial replacement of your engine also not an adjustment?

If you find yourself in this situation, I would consult a professional tax CPA.
 
NordicDave said:
Add up ALL you expenses. Every dollar decreases tax liability. Consider all maintenance & storage costs.
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NealRomeoGolf said:
Wrong unless you're talking business use.
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It was my understanding that any asset eligible for capital gains taxes has its basis adjusted upward for the repairs, maintenance, and improvements made to that asset. A house is a good example. New kitchen, bathrooms, reroof, the cost of an addition all changed the cost basis for the tax liability calculation.

Normal operating expenses like insurance, oil, fuel, oxygen tank refills, annual inspections, etc are expenses that can only be deducted from income if part of a business.
 
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Interesting.....A friend of mine bought and sold airplanes and never considered this. And no one ever asked. :rolleyes:
 
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Hmmm, probably better not to write about it on the internet.
 
NordicDave said:
It was my understanding that any asset eligible for capital gains taxes has its basis adjusted upward for the repairs, maintenance, and improvements made to that asset. A house is a good example. New kitchen, bathrooms, reroof, the cost of an addition all changed the cost basis for the tax liability calculation.

Normal operating expenses like insurance, oil, fuel, oxygen tank refills, annual inspections, etc are expenses that can only be deducted from income if part of a business.
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You said repairs, maintenance and improvements and then only listed improvements. You cannot add repairs and maintenance to your basis.
 
Rcmutz said:
Like I said, I was not able to find anything via googling the question. Most hits dealt with business aircraft and depreciation. Can you post a reference here for the rest of us?
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NealRomeoGolf said:
Here's another IRS link and I'll quote it.

https://www.irs.gov/taxtopics/tc409#:~:text=You have a capital gain,, aren't tax deductible.

"Almost everything you own and use for personal or investment purposes is a capital asset."
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After reading the couple of links you provided, I would now agree that capital gain on the sale of personal aircraft property is taxable. My next question is, is there a certain amount that is exempt, like there is on a home sale?

I also wonder how many people actually report the sale of their aircraft as a capital asset sale? Although, we really haven’t been in an aircraft value inflationary situation in a very long time. Prior to the current times, the cost of an airplane being very dependent on engine SMOH, the addition of expensive avionics, and interior upgrades, the cost basis and sale value of the aircraft were probably very close, and the sale was a wash, if not a loss. With the current inflationary value of some aircraft, that may not be the case right now.
 
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