Sales of Aircraft Fractional Interest - Tax Recapture
Given the economic climate, some business aircraft owners are thinking of disposing of their aircraft. A sign of the times, unfortunately. This post is first in a series that flags some issues that tend to pop up in the context of aircraft dispositions. The first few posts will focus on dispositions of interests in aircraft under fractional ownership programs.
• Budget for recapture of tax depreciation. Most owners are well aware of the tax benefits associated with the use of aircraft in their businesses - particularly the allowances for bonus depreciation and accelerated depreciation. Given that business aircraft operated under Part 91-K may qualify as 5-year MACRS property, some owners may have a zero basis. If you have a low tax basis you should keep in mind that the sale of your interest may trigger the recapture of the depreciation allowance, and that this will be treated as ordinary income – not capital gain – for federal income tax purposes. If you have purchased (or expect to purchase) another aircraft or interest you may be able to avoid recapture through the use of a like-kind exchange – but if you are simply looking to put your days of aircraft ownership in your rear view mirror, a like-kind exchange is not the answer.
