Plane & Pilot
Tuesday, July 5, 2011

Making The Most Of Your Aircraft Asset


Aircraft leasebacks can lower the cost of ownership


Whether there will be any income-tax advantages is dependent on several issues. First of all, and probably the most critical question to answer, is centered on the nature of the business activity. Are you operating an aircraft-rental business, or is this a de minimus and incidental part of the business use of your plane?

If the transaction is viewed as a part of the business use of your plane and a part of your trade or business, then there generally are no restrictions on claiming a deduction if you have a loss. If you're in the rental business, then you'll come under the provisions of IRC Section 469, which limits the deductibility of rental losses.

The kink with Section 469 is that rental losses are allowed as a deduction against rental income only. In the event that rental losses exceed rental income, then the net rental losses in excess of rental income are carried over to future years and deducted against rental income of future years.

Oftentimes, the expenses during the first five years reduce the revenue down to, but not below, zero. Then in years six and later, as these years report profits, the unused (suspended) losses from years one through five come into play. These early-year unused losses provide a tax deduction against the profit in years six and later to reduce the income to zero for a given year. This will continue until all of the early year losses have been absorbed. What a mess.

Another kink with Section 469 is that there are real-estate rentals and there are "other" rentals. The bad part is that even though they're both rentals, they can't be paired together and both must stand alone.

Section 469 contains several exceptions, elections and deals that can be made with the IRS regarding the leasing of your plane. Section 469 also has the ability to completely change the expected outcome of your leasing proposal. I highly recommend that you discuss aircraft leasing with your tax professional before you sign any leasing contract. Most surprises under Section 469 aren't very pleasant.

Unfortunately, there doesn't exist one clear-cut definition that will solve everybody's individual tax situation. Each taxpayer is unique, and any lease agreement must be individually evaluated. As such, any tax decisions must be evaluated on their own merit for each respective taxpayer.

Regardless, any time you can put your airplane to work during the hours it would otherwise just be sitting on the ground, cash inflow will be generated to help fund the airplane operations and ownership. Sit down and work out what the net cash flow will be. If there are tax advantages to be gained, add them in to the equation. Give your plane a chance to do its job and make some money for you.

Leasebacks: Where to Go

AirShares Elite (www.airshareselite.com) is ideally suited to owners of Perspective-equipped Cirrus SR22 aircraft. Their leaseback program is unique in the industry and leverages the company's size and focused customer base to provide attractive leaseback options. In one scenario, AirShares leases time in your aircraft to members in specific markets. In addition to a high hourly return for the owner, AirShares offers turnkey supervised maintenance and exceptional insurance coverage. Another scenario is to let AirShares sell fractional interest in your plane to other AirShares owners. This allows the owner to reduce their ownership to a level that matches their needs while still enjoying the benefits of ownership, without the capital commitment and ongoing costs.

In either program, your airplane is flown only by qualified and carefully trained AirShares owners, and not primary students. Another benefit for leaseback owners is they have access to AirShares' nationwide fleet of aircraft, something a traditional FBO could never provide. Access to this fleet of identical aircraft nearly anywhere in the country gives members nearly the same availability as full ownership.


O. H. "Harry" Daniels, Jr., is a CPA and a CFP licensee. Daniels has held his license as a private pilot since 1991. He's a partner with the firm of Duggan, Joiner & Company, Certified Public Accountants, and can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .



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