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Aircraft used primarily for business, trade or investment is eligible for 1031 tax deferral. Like real estate held for investment, an aircraft sale follows similar tax consequences. Upon sale, if either appreciation or depreciation is present taxes are triggered. Tax on appreciation is called federal capital gains and recaptured depreciation on depreciation. Both can be deferred toward the purchase of a replacement aircraft given the following are satisfied.
Like Kind: Both old and new aircraft must be like-kind to one another. All aircraft and helicopters except commercial aircraft used in transporting cargo or passengers are treated as like-kind under IRS General Asset Class 00.21. Commercial or scheduled charter aircraft must be replaced under Standard Industry Classification 3872. Engines and aircraft components are also eligible for 1031 tax deferred exchanges.
Qualifying Use or Intent: Facts such as time log must support qualifying use or intent for both the relinquished and replacement aircraft is business, trade or investment. Similar to real estate, personal use must be kept to a minimum.
Equal or Greater in Value: If the intent is to defer 100% of the gain, the replacement aircraft must be equal to or greater in value than the old aircraft. The purchase price plus purchase expenses must be equal to or greater than the sales price less selling expenses.
Timeframes: Replacement property must be identified in writing preferably to the Accommodator by the forty fifth calendar day post closing of the old aircraft. The replacement property must be purchased by 135th day for a total of 180 calendar days post the first closing.
Same Taxpayer: The taxpayer who sells the aircraft must be the same taxpayer who purchases the new aircraft. Individuals, trust, corporations or limited liability companies can initiate an exchange for aircraft.
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Foreign Property: The exchange of domestic real or personal property for foreign real or personal property is not eligible for 1031 consideration. Special rules apply to determine whether the property was predominantly used in the United States.
Specific to each state are Use and Sales tax issues that must be thoroughly understood with the help of your tax advisor. Generally, sales taxes are collected by the seller of the replacement aircraft for the local taxing authority while use taxes are payable by the replacement aircraft purchaser if the seller does not collect sales tax. Questions to consider are:
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Use Tax
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1. Is the aircraft being purchased by a licensed dealer, lessor or by the user of the aircraft?
2. What state is the aircraft hangered?
a. Does the hangered state collect use tax on aircraft?
3. What state does the Exchangor maintain residency?
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Sales Tax
1. Is the seller of the aircraft a licensed retail seller?
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a. In what state does the sale occur?
b. If another state, does that state collect sales tax.
i. “Fly away exemption.”
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Andrew W. Gustafson,
CES®
Managing Member
Atlas 1031 Exchange, LLC
Toll Free: 866.521.1031 | EFax: 850.201.6911
Dallas: 214.523.9067 | Destin: 850.837.1031 |
Houston: 713.821.1776
Email: andgus@atlas1031.com
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Atlas 1031 Exchange, LLC is a Qualified Intermediary and does
not provide advice regarding specific tax consequences of IRC 1031 tax
deferred exchanges. Investors are encouraged to seek the
counsel of their attorney and accountant.
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Atlas 1031 Exchange, LLC. All rights reserved. Site designed by VTD, Inc.
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