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Frequently Asked Questions

Aviation Tax Consultants, LLC is proud to serve as a key resource for our clients. As part of our commitment to help you with your aviation tax needs, we’ve gathered links, articles, and other resources for information you may need. If you can’t find what you’re looking for, please don’t hesitate to contact us. Below you will find answers to our most frequently asked questions:

1. Do I have to pay sales or use tax on my aircraft purchase?
2. Can I use a Delaware corporation to avoid sales tax?
3. I already bought a plane, can you still help me?
4. I am ready to close on a plane next week, is there enough time to get things set up?
5. Can I write off my aircraft expenses that I use for both business and pleasure?
6. When will bonus depreciation end? Updated
7. What qualifies as a new aircraft?
8. What is “placed in service?”
9. How much income tax will I save?
10. What is Section 179 Expensing? Updated
11. My CPA says I can’t write off my aircraft…
12. My CPA has done my taxes for twenty years, why do I need ATC’s services?
13. Do I have to pay capital gains tax when I sell my plane?
14. Can I charge my friends when I fly them to the weekend golf trip?
15. I received a letter from my state department of revenue asking me to pay sales tax on my aircraft, can you help me?
16. Do you have a California sales tax exemption update?

Answers:

Q : Do I have to pay sales or use tax on my aircraft purchase?
A : Sales or use tax is administered by each state and depending on where you domicile your aircraft, ATC may be able to help you legally minimize or even eliminate the entire sales or use tax liability on an aircraft purchase.
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Q : Can I use a Delaware corporation to avoid sales tax?
A : The age-old myth is to use an out-of-state entity to avoid paying sales or use tax on the purchase of an aircraft.  No, you can not legally avoid paying sales or use tax by using a Delaware, Nevada or Montana entity.  The state that you domicile your aircraft has the legal authority to levy sales or use tax on your aircraft.  In this era of revenue deficits, many states have dramatically stepped up their enforcement efforts to assess sales or use tax on aircraft purchases.  Their tactics range from obtaining aircraft registration information directly from the FAA, auditing aircraft manufacturer’s or dealer’s sale records, to requiring airports / FBO’s to submit listings of tail numbers of aircraft that are hangared at their airport.
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Q : I already bought a plane, can you still help me?
A : While it may be too late to structure a plan for sales and use tax, it is not too late for ATC to review your current aircraft ownership structure and implement a plan that can provide income tax savings.
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Q : I am ready to close on a plane next week, is there enough time to get things set up?
A : Depending on the states that are involved – closing location and where you will domicile the aircraft – ATC can create and implement a plan in as little as 24 hours.
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Q : Can I write off my aircraft expenses that I use for both business and pleasure?
A : In recent years, the IRS and the Tax Court have published a number of rulings that are very favorable to aircraft owners that utilize their aircraft in a trade or business.  With proper planning, you can write off your operating expenses and depreciation.
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Q : When will bonus depreciation end? Updated
A : Bonus deprecation expired on December 31, 2009.  If you make a non-refundable deposit and signed a valid purchase contract prior to December 31, 2009, your 2010 purchase can qualify for bonus depreciation.  As of March 5, 2010, Congress has not discussed extending bonus depreciation for 2010.
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Q : What qualifies as a new aircraft?
A : Generally speaking, factory new aircraft and dealer’s demo aircraft both qualify as new.  In addition, any improvements made to a used aircraft will also qualify as new equipment, subject to bonus depreciation rules.
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Q : What is “placed in service?”
A : In order to deduct expenses related to an aircraft, you have to place the aircraft in service before the end of your tax year.  Signing a contract or making a deposit will not satisfy the placed in service requirement.  You should have legal title to the aircraft and the aircraft should be available to you for use in order to meet the placed in service requirement.
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Q : How much income tax will I save?
A : Your income tax savings will approximate your “marginal” income tax rate times the deductions generated by the aircraft purchase.  For example, $200,000 of aircraft deductions at a marginal income tax rate of 35% will equate to a tax reduction of $70,000.  State income tax liability may also be reduced depending on your state of residence.
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Q : What is Section 179 Expensing? Updated
A : In addition to depreciation deductions, the tax law allows small businesses to expense up to $250,000 in capital improvements expenses for the 2010 tax year.  This provision applies to both NEW and USED aircraft.  There are various requirements that you need to meet in order to qualify for Section 179 expensing.  For this code section, a small business is defined as a taxpayer that incurred less than $800,000 in capital expenditures.  The President is expected to sign this legislation into law during the week of March 8, 2010.
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Q : My CPA says I can’t write off my aircraft…
A : ATC specializes in aircraft taxation.  No practitioner can be well versed in all aspects of the tax codes.  100% of ATC’s clients engage their own CPA’s. ATC will work with your advisors to determine whether you can take advantage of your aircraft and reduce your tax burden.
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Q : My CPA has done my taxes for twenty years, why do I need ATC’s services?
A : You will continue to work with your CPA on your accounting and tax compliance needs.  ATC will be responsible for structuring and implementing an aircraft tax plan that fits your tax situation and a plan that is in full compliance with Federal Aviation Regulations.  We work closely with your current advisors to create and implement the plan.
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Q : Do I have to pay capital gains tax when I sell my plane?
A : When you sell an aircraft that has been depreciated, there will be “depreciation recapture” – income tax will be paid on the amount of gain.  The gain is the amount that the sales price exceeds the adjusted basis of the aircraft.  This recapture will be taxed as ordinary income, not capital gains.
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Q : Can I charge my friends when I fly them to the weekend golf trip?
A : Most pilots operating under FAR Part 91 are not allowed to charge others for transportation.  A violation of FAR Part 91 regulations may terminate your insurance coverage.  Please call ATC to review your current arrangement.
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Q : I received a letter from my state department of revenue asking me to pay sales tax on my aircraft, can you help me?
A : Unfortunately, once the state authority “catches” you, it is not very likely that ATC can help you.  We will be happy to review the notice to give you a definitive answer with no obligation to you.
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Q : Do you have a California sales tax exemption update?
A : Depending on how you use the aircraft, you can qualify for the Interstate Commerce Exemption to eliminate the sales and use tax liability and utilize your aircraft immediately after purchase.  The 90-day test has been repealed by the legislature.
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