Aircraft tax depreciation with CFI spouse

redhandle

redhandle

Filing Flight Plan
Joined
May 12, 2017
Messages
28
Display Name
Display name:
Red Handle
Hi there! Here's a hypothetical and not-so-hypothetical question for all the tax guru's out there.

Let's supposed the following:

1. I earn $500k per year in a job that has nothing to do with aviation and has no possible justification for an aircraft
2. My wife does not work
3. My wife is doing PPL training
4. She might be interested in extending this into a commercial / CFI certification
5. We don't currently own an aircraft, but would like to buy one.

Let's also suppose my wife gets a CFI, then we buy an airplane and she starts giving lessons in it.

Let's finally suppose she teaches for 100 hours per year, and then we personally fly it for another 99 hours per year, making this a 'business use' aircraft.

She will earn next to nothing of course - let's say $2000. BUT, not the point. The big question is - can we combine our salaries ($502000), filing jointly, and take a deduction for the aircraft against our joint income, come April 15th? E.g. $200k on a $1m aircraft reducing joint income to $300k.

Or to take a deduction, must the income that you deduct it from be sourced from aircraft operations itself? i.e. From her $2000 of earnings.
 
Last edited:
I think that once she actually becomes a CFI or at a minimum a commercial pilot you might have a leg to stand on. However, I will say that everyone I know of making $500k a year can easily find some justification for aviation has an aid to whatever business they are in.
 
Last edited:
redhandle said:
Hi there! Here's a hypothetical and not-so-hypothetical question for all the tax guru's out there.

Let's supposed the following:

1. I earn $500k per year in a job that has nothing to do with aviation and has no possible justification for an aircraft
2. My wife does not work
3. My wife is doing PPL training
4. She might be interested in extending this into a commercial / CFI certification
5. We don't currently own an aircraft, but would like to buy one.

Let's also suppose my wife gets a CFI, then we buy an airplane and she starts giving lessons in it.

Let's finally suppose she teaches for 100 hours per year, and then we personally fly it for another 99 hours per year, making this a 'business use' aircraft.

She will earn next to nothing of course - let's say $2000. BUT, not the point. The big question is - can we combine our salaries ($502000), filing jointly, and take a deduction for the aircraft against our joint income, come April 15th? E.g. $200k on a $1m aircraft reducing joint income to $300k.

Or to take a deduction, must the income that you deduct it from be sourced from aircraft operations itself? i.e. From her $2000 of earnings.
Click to expand...

I am not a tax guru, but you also have recapture if you sell the plane or go out of business.
https://www.aopa.org/go-fly/aircraft-and-ownership/buying-an-aircraft/the-pilots-guide-to-taxes
 
Last edited:
Art VanDelay said:
However, I will say that everyone I know of making $500k a year can easily find some justification for aviation has an aid to whatever business they are in.
Click to expand...

I'm just a salaried emplyee for all practical purposes. I do get a K1 instead of a W2 so I pay self employment tax etc. But I'm a tiny tiny shareholder and have zero influence in being able to convince the managing partners to buy a plane.
 
You're going to want to ask a tax attorney before claiming a $200k deduction.
 
Art VanDelay said:
I think that once she actually becomes a CFI or at a minimum a commercial pilot you might have a leg to stand on. However, I will say that everyone I know of making $500k a year can easily find some justification for aviation has an aid to whatever business they are in.
Click to expand...

That

I'd talk to a tax guy, at half a mil a year I wager you have one ;)

I depreciate mine, but I fly for a living, ended up making a LLC for the plane.
 
You're going to have to ask your tax accountant but as far as I know joint means joint. Your money is thrown together into the pot. All income one big number, all deductions thrown together to go against it. Unless I really misunderstand things.
 
You're coming here for tax advice!!!! Getting out of paying taxes is as American as baseball, hot dogs, Fourth of July, cherry pie, and bat-crap crazy redheads named Tiffany.... and there a ton of experts... take me for instance:p

Here is how I look at it; and having been through two audits where I came out the winner... what your doing is just the kind of stuff that will trigger a red flag with the IRS... In short, to do it right, you're doing to need to have set up a company for your wife and the airplane, and rent the plane back to yourself when you're using it for personal stuff, simply treat it like a business... It would be nice if we could take depreciation on our homes, cars (unless for business use), and other stuff, but this is a no can do with personal property...

Like others said, talk to you tax guy/attorney
 
Last edited:
redhandle said:
1. I earn $500k per year in a job that has nothing to do with aviation and has no possible justification for an aircraft
Click to expand...
You're screwed! Here's a few case studies for you to read. I suggest you start a business where an aircraft plays an important role in the furtherance of that business. Using one income (especially if you're salaried) to offset the losses for another venture that's totally unrelated to the use of an aircraft for your main business use is a big NOGO in the IRS's eyes.
 
If you never make money in that activity (CFI), you will be presumed by the IRS to have an activity not engaged in for profit (I.e. a hobby). See IRC Section 183. Then you can only deduct expenses to the extent of income from the activity. You would get a $2000 deduction.

It has nothing to do with what business entity is being used. There is no requirement that you rent it back to yourself. That is a myth. You may have other non-tax reasons for having this in an LLC, but a single member LLC is treated exactly like a sole proprietorship on your 1040.
 
Rushie said:
You're going to have to ask your tax accountant but as far as I know joint means joint. Your money is thrown together into the pot. All income one big number, all deductions thrown together to go against it. Unless I really misunderstand things.
Click to expand...
Not the case for me. I have a house in Michigan that I rent out except for a couple weeks for personal use (my wife likes it there). The income from the rental is offset by the expenses for the house including depreciation (which is basically just a zero interest loan from the government) but when those deductions exceed the income I have to carry that loss forward and can't use it to reduce my personal income tax.
 
redhandle said:
Or to take a deduction, must the income that you deduct it from be sourced from aircraft operations itself? i.e. From her $2000 of earnings.
Click to expand...

You will be able to deduct a portion of (interest, depreciation, maint, fuel, hangar) of the aircraft use renting to a student. Your personal use cannot be deducted nor your wife's CFI fee. Also. You will be doing 100 hour annuals instead of a one year annual increasing maintenance costs.

Her income combines with yours for your joint or separate returns as any other income. And expect an audit each year since, like a home office deduction, aircraft expensing is an even bigger red flag to the IRS.
 
citizen5000 said:
You will be able to deduct a portion of (interest, depreciation, maint, fuel, hangar) of the aircraft use renting to a student. Your personal use cannot be deducted nor your wife's CFI fee. Also. You will be doing 100 hour annuals instead of a one year annual increasing maintenance costs.

Her income combines with yours for your joint or separate returns as any other income. And expect an audit each year since, like a home office deduction, aircraft expensing is an even bigger red flag to the IRS.
Click to expand...

Wrong. You will not be doing 100hr annuals, there is no such thing. A aircraft supplied for instruction will require a 100hr inspection. That is not an annual inspection, that is also required. But, the scope is different and the requirements of who can perform it are different.
 
Ok, thanks. Lots of good advice here. I will obviously speak to a tax attorney, but would like to learn about this stuff first to know what questions to ask.

I've read through the AOPA information including the 'hobby loss' info. I can see there are fine lines there for this not to be considered a hobby. She won't really just be able to teach for 100 hours per year and justify this as a for-profit operation.

What about putting the plane in a leaseback? Does anybody have experience with the tax treatment of that?
 
unsafervguy said:
Wrong. You will not be doing 100hr annuals, there is no such thing. A aircraft supplied for instruction will require a 100hr inspection. That is not an annual inspection, that is also required. But, the scope is different and the requirements of who can perform it are different.
Click to expand...

They are the same with one major difference; it's who does them.

A 100-Hr Check is performed by the same A&P as an annual but may not be someone authorized to perform the inspection by the manufacturer (in other words any mechanic will do).

An Annual Inspection is a yearly evaluation. The inspected components are the same as that of a 100-Hr Check, ONLY an A&P Technician with Inspection Authority Certification, or IA, can sign off on the Annual Inspection Report.
 
no they are not the same. what is inspected is called out in the maintenance manual for the aircraft. some aircraft manuals treat them the same IE cirrus, some don't. there are some things that are not required to be inspected on a 100HR that are required to inspected on an annual. easy hint for one of them check far 91.207.

a 100hr may or may not be done by the same A&P as the annual. and it is NOT "only and A&P with IA that can sign off the inspection" ONLY an A&P with and IA can PERFORM AND SIGN OFF THE ANNUAL" an IA must do the inspection, not just sign it off.
 
For purposes of planning expenses the issue I raised stands. Having to do 100 hour intervals for major maintenance checks is more costly than a personal plane that no matter how many hours you fly only needs a single annual inspection each year.
 
citizen5000 said:
For purposes of planning expenses the issue I raised stands. Having to do 100 hour intervals for major maintenance checks is more costly than a personal plane that no matter how many hours you fly only needs a single annual inspection each year.
Click to expand...

Keep in mind, if I can take a full deduction, I can save $350'000 in taxes (e.g. on a G6 SR22T) over 5 years - ~$140'000 of that just in the first year. Would the maintenance really make this not be worthwhile?
 
And with bonus depreciation, it's even more than $140,000 in the first year. You can deduct the maintenance costs every year, too.
 
aggie06 said:
And with bonus depreciation, it's even more than $140,000 in the first year. You can deduct the maintenance costs every year, too.
Click to expand...

I "only" pay $140'000 in taxes a year.
 
redhandle said:
Keep in mind, if I can take a full deduction, I can save $350'000 in taxes (e.g. on a G6 SR22T) over 5 years - ~$140'000 of that just in the first year. Would the maintenance really make this not be worthwhile?
Click to expand...

If you can fully assign your aircraft to business use it's a big winner. Especially if you get to do all the flying and can readily and easily prove all your flying is for business and the IRS agrees.

A part time personal use and renting the plane to students is weaker. Not only is this idea complicated enough to get the IRS attention (part time personal, part time business) but it also requires the added maintenance and wear/tear students will inflict on the plane. If the plane is new the 100 hour checks will be pricey and so will the still required annuals. The depreciation is fractional since it's part personal and tracking the different modes of the planes use is also a lot of work that will no doubt be examined carefully during the IRS audits.

As you note. If really big depreciation expenses are being taken on a Cirrus doesn't it make sense the IRS is going to make sure what you claim is justified and true? It's the kind of risk anyone getting ready to take better do a lot more than seek advise on an aviation chat site and/or try to manage without a pro.

I know a guy who has owned three successive Cirrus SR22 and SR22T over a ten year period. He and his wife fly together and exclusively for business. He is taking delivery on the SF50 jet this year. He is living the dream. But his business is unquestioned in regard to needing the aircraft for business travel. His customers are spread all over the western hemisphere.
 
I'm just going to say that OP should be commended for having such a great username. Props to you sir.
 
citizen5000 said:
As you note. If really big depreciation expenses are being taken on a Cirrus doesn't it make sense the IRS is going to make sure what you claim is justified and true? It's the kind of risk anyone getting ready to take better do a lot more than seek advise on an aviation chat site and/or try to manage without a pro.
Click to expand...

I won't go near an airplane without having spoken to a pro first. But at the moment I don't even know what questions to ask of a tax attorney. So trying to learn as much as I can from other's experiences first.

My primary source of income has absolutely no need for business travel - won't even be able to justify an airline ticket.
 
redhandle said:
I won't go near an airplane without having spoken to a pro first. But at the moment I don't even know what questions to ask of a tax attorney. So trying to learn as much as I can from other's experiences first.
My primary source of income has absolutely no need for business travel - won't even be able to justify an airline ticket.
Click to expand...

Fine. But buying an expensive plane expected to write-off all or part of it and then find out after the purchase you risk a tax problem can be costly.

One other point. The guy I mentioned who has owned several Cirrus and is in queue for the jet says the IRS audits him regularly. And one of the things they check is to see if any flight can be made on a commercial carrier. His customers are agricultural and he needs to use smaller airports to get closer to them delivering a product to them that also would not do well in baggage.
 
James331 said:
That

I'd talk to a tax guy, at half a mil a year I wager you have one ;)

I depreciate mine, but I fly for a living, ended up making a LLC for the plane.
Click to expand...
I created an LLC for the next plane. I have a registered agent with an address in a different state than where I live and where the AC will be based. Anyone think this will trigger a tax bill from the RA's state?
 
I would assume anyone with $500,000 on taxable income has a CPA on speed dial. If not, you should. A tax attorney would be even better.
 
Lindberg said:
I would assume anyone with $500,000 on taxable income has a CPA on speed dial. If not, you should. A tax attorney would be even better.
Click to expand...

The last time I used a tax attorney it was Arthur Andersen. Should probably start looking for a new one...
 
You must log in or register to reply here.
Back
Top