FAQ
Frequently Asked Questions
Below you will find answers to our most frequently asked questions. If you can’t find the information you are looking for, please don’t hesitate to contact us.
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. Delivery location can also create potential sales tax liability.
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 cannot 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. Exemptions may be available depending on your home state.
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.
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.
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 of a business aircraft.
Bonus deprecation has been renewed by Congress through 2022. 100% bonus depreciation applies to new or pre-owned aircraft in 2019. Congress has voted to make Section 179 Expensing permanent. The expensing limit for 2020 is $1,040,000, applicable to new or used aircraft with a phaseout starting at $2,590,000.
Tax depreciation is governed by the Internal Revenue Code. If you have a legitimate business reason to use your aircraft, you are entitled to depreciate the business use portion of the aircraft. In fact, you may be required to depreciate your aircraft, if you are deducting aircraft operating expenses. Choosing not to depreciate a business aircraft can result in severe negative income tax consequences.
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.
Your income tax savings will approximate your “marginal” income tax rate times the deductions generated by the aircraft purchase. For example, $2,000,000 of aircraft deductions at a marginal income tax rate of 40% will equate to an income tax reduction of $800,000. State income tax liability may also be reduced depending on your state of residence.
ATC specializes in aircraft taxation and planning. 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 or should take advantage of your business aircraft and reduce your tax burden.
ATC does not provide tax preparation services. 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. ATC will work closely with your CPA to ensure that your tax return is prepared properly to comply with various aviation specific tax regulations.
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.
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.
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.
Keeping the aircraft outside California for 90 days after purchase will no longer be exempt from sales tax. The interstate commerce exemption for business aircraft can completely eliminate sales and use tax due to the California Department of Fee and Tax Administraton (formerly the Board of Equalization). ATC can assess your situation to see if you are a candidate for this exemption.