Selling my plane to my company

[EdFred]

End of the year is upon us for my company and it turns out we need to unload some cash. The company has made an offer to purchase my plane, and then I can "lease" it back for $1/year or month.

I'm the only person licensed to fly the plane in the company, and the owner is an immediate relative.

Drawbacks?

Now - the other kicker - I'll be comm rated by the end of the summer. Any additional allowances with me not being an owner of the plane and what I'm allowed to do as opposed to it being my plane.

 

[gismo]

End of the year is upon us for my company and it turns out we need to unload some cash. The company has made an offer to purchase my plane, and then I can "lease" it back for $1/year or month.

I'm the only person licensed to fly the plane in the company, and the owner is an immediate relative.

Drawbacks?


Now - the other kicker - I'll be comm rated by the end of the summer. Any additional allowances with me not being an owner of the plane and what I'm allowed to do as opposed to it being my plane.

Downsides:

Insurance might go up, and many policies issued to corporate owners eliminate coverage for flying rented or borrowed planes. Insurance will definitely go up if you add coverage for commercial ops.

You might have to pay sales tax to make the transfer.

The company (owner) will be liable for any accident whether or not the flight was work related.

The company may have deeper pockets than you and higher liability limits may be needed.

WRT to commercial ops, I don't think this would change much, but I'm not sure. I do expect that any attempt to get around a part 135 requirement by this change would raise eyebrows at the FSDO since you (the pilot) would still be supplying the plane in effect. OTOH, With the company paying you as a pilot I think that you could get away with charging your customers for air delivery of material but I'm not real sure about that.

 

[Ed Guthrie]

Quote:
Originally Posted by N2212R
End of the year is upon us for my company and it turns out we need to unload some cash. The company has made an offer to purchase my plane, and then I can "lease" it back for $1/year or month.

I'm the only person licensed to fly the plane in the company, and the owner is an immediate relative.

Drawbacks?


Now - the other kicker - I'll be comm rated by the end of the summer. Any additional allowances with me not being an owner of the plane and what I'm allowed to do as opposed to it being my plane.

Downsides:

Insurance might go up, and many policies issued to corporate owners eliminate coverage for flying rented or borrowed planes. Insurance will definitely go up if you add coverage for commercial ops.

You might have to pay sales tax to make the transfer.

The company (owner) will be liable for any accident whether or not the flight was work related.

The company may have deeper pockets than you and higher liability limits may be needed.

WRT to commercial ops, I don't think this would change much, but I'm not sure. I do expect that any attempt to get around a part 135 requirement by this change would raise eyebrows at the FSDO since you (the pilot) would still be supplying the plane in effect. OTOH, With the company paying you as a pilot I think that you could get away with charging your customers for air delivery of material but I'm not real sure about that.

Ed F.'s original post leaves a crucial question unresolved. Is the lease an exclusive operation leaseback, or is it a lease of aircraft time for your personal use on an as available basis? The answer is crucial with respect to any flying you do for the company. IOW, when flying for the company are you flying the company plane for the company as the company pilot, and at other times you are an employee borrowing a company asset for your personal use? Or when flying for the company are you providing an aircraft and providing the pilot, the later being provided as an "employee" of the company?

If you lease exclusive use of the aircraft then in FAA parlance you are the aircraft "operator" and if you provide the airplane and the pilot (you) for a company flight the operation is Part 135. If you tell the FAA that you are on the company payroll as the company pilot and therefor don't fall within Part 135 they may or may not buy the story. Either way, you'll be under the microscope from the point onward.

With respect to Lance's comments about charging company customers for parts delivery, under either scenario above the operation is Part 135. The only question is whether the company is a Part 135 operator and, without a Part 135 certificate, you are then the pilot flying for the illegal Part 135 operator; or under the alternate scenario you are the Part 135 operator and, without a Part 135 certificate, you are then the illegal operator and the pilot flying for the illegal operator.

 

[wsuffa]

In addition to Ed and Lance's comments, you will also want to check out the recent changes to IRS regs with regard to imputed income from the use of company aircraft. If you are leasing it back at a rate well below FMV, there may be liability for taxes.

I don't know the specifics, talk to your tax advisor.

 

[EdFred]

In addition to Ed and Lance's comments, you will also want to check out the recent changes to IRS regs with regard to imputed income from the use of company aircraft. If you are leasing it back at a rate well below FMV, there may be liability for taxes.

I don't know the specifics, talk to your tax advisor.

Well...we may just set it up that it's free for any employee to use at no charge other than fuel / oil / fees provided it's available for use. And since I'm the only pilot, it's pretty much my plane. We aren't doing this to improve our customer service, we basically are looking at our numbers for the end of the fiscal year, and need to dump some money somewhere without taxing mega tax hits on doing so. The plane is really the only option to unload 50k - depreciate 1/2 of it, and take a write off. It's in speculative mode as to what we are able to do right now.

 

[wsuffa]

Well...we may just set it up that it's free for any employee to use at no charge other than fuel / oil / fees provided it's available for use. And since I'm the only pilot, it's pretty much my plane. We aren't doing this to improve our customer service, we basically are looking at our numbers for the end of the fiscal year, and need to dump some money somewhere without taxing mega tax hits on doing so. The plane is really the only option to unload 50k - depreciate 1/2 of it, and take a write off. It's in speculative mode as to what we are able to do right now.

I'd still check. That may result in imputed income to the value of the benefit, or you may lose the tax benefit to the company for the personal use.

 

[Henning]

End of the year is upon us for my company and it turns out we need to unload some cash. The company has made an offer to purchase my plane, and then I can "lease" it back for $1/year or month.

I'm the only person licensed to fly the plane in the company, and the owner is an immediate relative.

Drawbacks?

Now - the other kicker - I'll be comm rated by the end of the summer. Any additional allowances with me not being an owner of the plane and what I'm allowed to do as opposed to it being my plane.

You say MY company, so I'm taking that literally. I am not a legal or tax expert, but here's the way I see it. Have the company own the plane as an assett for incidental business use. As for your personal use, the company rents it to you at either calculated and documented verifiable cost, or more simply FMV. Gotta dot the i's and cross the t's. This keeps you out of trouble with the IRS and FAA. I don't know if it will achieve the tax goals you are looking for. If you use the plane mostly for business, this will work pretty well I think, however if most of your flying is personal, the tax benefits will be minimal except the initial depreciation hit.

 

[Big Bird]

Well...we may just set it up that it's free for any employee to use at no charge other than fuel / oil / fees provided it's available for use. And since I'm the only pilot, it's pretty much my plane. We aren't doing this to improve our customer service, we basically are looking at our numbers for the end of the fiscal year, and need to dump some money somewhere without taxing mega tax hits on doing so. The plane is really the only option to unload 50k - depreciate 1/2 of it, and take a write off. It's in speculative mode as to what we are able to do right now.

many states (mine included) levy a "personal property" tax on business owned assets. here, that amounts to 5% of the asset value. It's like paying sales tax on your property every year!

I would think that there are lots of places to park surplus finds that won't incur tax liability. The Part 135 discussion is out of my depth but, I wouldn't try to "work" that system for any reason.

Good luck.

 

[Iceman]

Well...we may just set it up that it's free for any employee to use at no charge other than fuel / oil / fees provided it's available for use. And since I'm the only pilot, it's pretty much my plane. We aren't doing this to improve our customer service, we basically are looking at our numbers for the end of the fiscal year, and need to dump some money somewhere without taxing mega tax hits on doing so. The plane is really the only option to unload 50k - depreciate 1/2 of it, and take a write off. It's in speculative mode as to what we are able to do right now.

Hi Ed.
I think it would be wise to talk to a tax advisor before you do anything. The process of writing off a plane is not an easy one. I'm not very familiar with the process but I have heard there are two ways to write off a plane. The first method uses a percentage method based on the number of flights you use for business. Therefore if you only fly 5% for business you can only write off 5% of the plane. The other method that you can use gives you a full write off...however, you need to have all your hours well documented and have a breakdown of approximately 50%+ of business, and the rest split between recurrency and personal.

The government also requires the company to charge you/pay a certain per mile charge based on your class of aircraft for all personal flights...you cannot make up a value for this they set it based on type of aircraft.

Also because an aircraft (especially an older aircraft) depreciates at a slow rate (unlike a computer) you will need to pay a lot of the write off back because your company will most likely still be in a high income bracket when you sell the plane or turn it back to a personal plane.

 

[gismo]

Hi Ed.
I think it would be wise to talk to a tax advisor before you do anything. The process of writing off a plane is not an easy one. I'm not very familiar with the process but I have heard there are two ways to write off a plane. The first method uses a percentage method based on the number of flights you use for business. Therefore if you only fly 5% for business you can only write off 5% of the plane. The other method that you can use gives you a full write off...however, you need to have all your hours well documented and have a breakdown of approximately 50%+ of business, and the rest split between recurrency and personal.

The government also requires the company to charge you/pay a certain per mile charge based on your class of aircraft for all personal flights...you cannot make up a value for this they set it based on type of aircraft.

Also because an aircraft (especially an older aircraft) depreciates at a slow rate (unlike a computer) you will need to pay a lot of the write off back because your company will most likely still be in a high income bracket when you sell the plane or turn it back to a personal plane.

You know Ed, I'm thinking maybe you should have the company buy you a hangar instead of the plane. AFaIK there aren't many consequences of allowing an airplane to sit inside a company building and the depreciation is probably a bit more straightforward.

 

[EdFred]

You know Ed, I'm thinking maybe you should have the company buy you a hangar instead of the plane. AFaIK there aren't many consequences of allowing an airplane to sit inside a company building and the depreciation is probably a bit more straightforward.

Already did that - which I am leasing back for $75/month. Now, if the company were to require me to stay current, by establishing monthly/quarterly/yearly flight minimums (beyond those required by the FAA), could I get reimbursed by the company (after comm-SEL) for any lease / rental expenses that were incurred during the year? Wouldn't I have to lease the company plane, in order to meet company currency requirements, for which I am then reimbursed by the company?

 

[bbchien]

Already did that - which I am leasing back for $75/month. Now, if the company were to require me to stay current, by establishing monthly/quarterly/yearly flight minimums (beyond those required by the FAA), could I get reimbursed by the company (after comm-SEL) for any lease / rental expenses that were incurred during the year? Wouldn't I have to lease the company plane, in order to meet company currency requirements, for which I am then reimbursed by the company?

Un, no. Only if you can show that you're the "company pilot" and that means looking at what flying you do for the company. The lessee
s qualification miniminums if just a lessee, are your dime.

 

[EdFred]

Un, no. Only if you can show that you're the "company pilot" and that means looking at what flying you do for the company. The lessee
s qualification miniminums if just a lessee, are your dime.

After I get the commercial (which will be after I get back in a couple weeks), I would be the company pilot. I realize I can not be the company pilot with only a private.