Is there a tax advantage in two aircraft owners trading airplanes rather than purchasing?
Posted on Nov 25, 2008 under Uncategorized |Two private airplane owners want to swap airplanes rather than buying from each other. Is there a tax advantage to this?
If these are private vehicles and not business property, there is no tax advantage. Like kind exchanges apply only to business property.
The exchange would be considered a sale, and any gain would be recognized even if no cash was received. No loss could be deducted.
By v b on Nov 22, 2008 | Reply
Like kind exchange.
If the FMV of the planes is more than their cost basis, it allows them to preserve their cost basis and NOT recognize the gain yet.
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By stephenweinstein on Nov 22, 2008 | Reply
Legally, no. If the value of the airplane received exceeds that basis in the airplane exchanged, then the difference is a capital gain.
Illegally, yes. In an exchange, it is possible that one or both owners might illegally misstate the value of the airplanes to avoid capital gains tax or to increase the amount of depreciation that can be deducted in future years. If the airplanes and bought and sold with actual money, then there is a real dollar amount attached to the transaction and it is somewhat harder to fudge the value for tax purposes.
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By ninasgramma on Nov 22, 2008 | Reply
If these are private vehicles and not business property, there is no tax advantage. Like kind exchanges apply only to business property.
The exchange would be considered a sale, and any gain would be recognized even if no cash was received. No loss could be deducted.
References :
By xtraheavy01 on Nov 22, 2008 | Reply
Kevin.
I think you are referring to a 1031 exchange, There is no taxes involved here
If you buy and he sells and hes buy and you sell, each of you may have taxable income to report.
hope this is helpful
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I am an income tax preparer
By tomtabuchi on Nov 22, 2008 | Reply
yes and no, potentially.
under the taxfree exchange provisions of section 1031, parties to any exchange of qualifying property are not taxed on the transactions. the requirements require that a party recognize a gain if "boot" is received by a party to the exchange. boot is defined as the receipt by on of the parties of property or asset that is not qualifying property (in this case the airplanes), cash or a net relief of debt obligation of the party.
in a perfect situation, where both parties have no debt and the fair market value of both planes are the same, both parties would not have a taxable transaction in the exchange of the planes. thereafter the individual''s original tax basis in their planes would be assigned to the planes they are exchanging. any computation of a gain or loss in a subsequent sale of the plane received in trade would require the used of the original tax basis cjompared to the selling of the planed received in trade.
the ideal situation rarely occurs and usually the fair market value of the planes would not be equal, the owner's of the planes may have loans on the planes with different loan balances. to equalize the trade, the exchangers withh equalize the trade the the preceding difficerences with payment of cash or potential giving other porperty or assets to make the exchange equitable. to the extend the either of the parties receive boot one of them could have taxable gain on a theroitical sale and gain of their plane measured by fair market value of the plane received and the cost or tax basis of the plane being given up. the taxable gain is limited to the extend that boot is received by the one party.
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me cpa