TAX.
- Overview
- Aircraft Tax Basics
- Advocate Overview
- Depreciation Calculator
- SIFL Calculator
- Tax FAQs
- Key Links
- Tax Disclaimer
Overview
Many Diamond Aircraft purchasers are entrepreneurs, professionals with their own companies, real estate investors, or plan to place their Diamond on leaseback in a flight school. All of these uses can constitute 'business use' and permit an owner to obtain significant tax savings by structuring his aircraft purchase correctly.
Business use also includes personal use charged to an employee as compensation. The amount charged as compensation is generally less than the corresponding deduction to the employer; therefore if you own a company you may have a tax planning opportunity. See SIFL discussion outlined below.
Whether you plan to use your aircraft in business and benefit from tax depreciation or you will primarily fly for personal use, it pays to proactively think about the tax implication of your purchase, from income tax to sales/use tax and property tax.
To help you with these questions, Diamond Aircraft has partnered up with Advocate Consulting Legal Group, PLLC., one of the leading U.S. firms specialized in aircraft taxation and legal matters. We invite you to explore this section to learn more, and then consult with Advocate (or another tax advisor of your choosing), as well as your CPA to optimize the tax structure for your aircraft.
Disclaimer: Certain information appearing on or accessed via our website is provided by Advocate Consulting Legal Group, PLLC., an independent provider of legal and tax advice and, accordingly, is not subject to verification by Diamond. All such information is based on general interpretations of the tax and legal provisions referred to, and should not be construed as specific legal or tax advice or guidance of any kind. Application to specific circumstances may vary. Please consult your tax advisor for more information.
Aircraft Tax Basics
An Aircraft purchase can impact taxes in three main areas:
1) Income Tax. Provided certain conditions are met, aircraft purchases can offer significant tax savings:
Section 179 expensing election of $250,000 in tax year 2010 (this expensing deduction is scheduled to drop to $25,000 in 2011).
b. Regular MACRS depreciation, up to 20% of remaining basis after expensing if aircraft is placed into service prior to September 30, (5% October 1 - December 31)
These depreciation opportunities combined can lead to up to nearly 100% depreciation on a Diamond Aircraft you buy in the first year of ownership:
| Diamond DA20 | NEW | |
| 2010 | 2011 | |
| Cost | $179,950 | $179,950 |
| Expensing Election | $179,950 | $25,000 |
| Regular Depreciation | $0 | $30,990 |
| Total 1st year deductions | $179,950 | $55,990 |
| Percent deductible | 100% | 31% |
| Diamond DA40 | NEW | |
| 2010 | 2011 | |
| Cost | $344,950 | $344,950 |
| Expensing Election | $250,000 | $25,000 |
| Regular Depreciation | $18,990 | $63,990 |
| Total 1st year deductions | $268,990 | $88,990 |
| Percent deductible | 78% | 26% |
| Diamond DA42 | NEW | |
| 2010 | 2011 | |
| Cost | $599,500 | $599,500 |
| Expensing Election | $250,000 | $-0- |
| Regular Depreciation | $69,900 | $119,900 |
| Total 1st year deductions | $319,900 | $119,900 |
| Percent deductible | 53% | 20% |
2) Sales/Use Tax. Each state has different rules for sales and use tax treatment of aircraft. In some cases, sales tax, if not managed properly, could add 8% or more to the purchase price of an aircraft. Fortunately, in all but three states (Oklahoma, Virginia, and Illinois are the exceptions), sales tax exposure can be managed by careful structuring of the aircraft purchase. For state-by-state information - State Tax Map
3) Property Tax. Each state also has distinct rules for property taxes or other ad valorem taxes on aircraft. These taxes vary from nothing to over $10,000 per year. They generally include taxes imposed by local authorities a well as the state. You may view a map of average state taxes imposed on a $500,000 aircraft by clicking here.
Disclaimer: Certain information appearing on or accessed via our website is provided by Advocate Consulting Legal Group, PLLC., an independent provider of legal and tax advice and, accordingly, is not subject to verification by Diamond. All such information is based on general interpretations of the tax and legal provisions referred to, and should not be construed as specific legal or tax advice or guidance of any kind. Application to specific circumstances may vary. Please consult your tax advisor for more information.
Advocate Overview
Advocate Consulting Legal Group, PLLC is an aviation law firm that joins attorneys, accountants, and paralegals into client service teams that maximize tax savings for their clients. Federal Aviation Regulations limit the use of non-commercial aircraft in a trade or business. Advocate's service teams design, implement, and defend programs customized to maximize tax savings while complying with the FARs. Advocate not only works with the client and his professionals in developing the most effective program, but also prepares sales tax returns, federal excise returns, income tax returns, and files documents with the FAA and the International Registry. Finally, Advocate represents clients before the IRS and state and local taxing authorities. For more on what Advocate can do, visit www.advocatetax.com.
Disclaimer: Certain information appearing on or accessed via our website is provided by Advocate Consulting Legal Group, PLLC., an independent provider of legal and tax advice and, accordingly, is not subject to verification by Diamond. All such information is based on general interpretations of the tax and legal provisions referred to, and should not be construed as specific legal or tax advice or guidance of any kind. Application to specific circumstances may vary. Please consult your tax advisor for more information.
Depreciation Calculator
This tax depreciation calculator provides you with a quick way to estimate the potential tax depreciation opportunity from purchasing your Diamond Aircraft.
It is provided for estimates only. By using this calculator, you acknowledge that it is provided by Advocate for informational purposes only, and is not intended to offer specific legal or tax advice. You should consult Advocate Consulting Legal Group, PLLC. for any specific matters requiring attention.
In order to calculate depreciation on an aircraft, consider the example of a purchase of a new aircraft for $500,000 prior to September 30th of the year:
| Step 1 | Deduction | ||
| Calculate 179 deduction - 100% of cost up to the maximum for 2010 - Maximum deduction $134,000, maximum investment $664,000 | $134,000 | ||
| Balance | $366,000 | ||
| Step 2 | Deduction | ||
| Calculate MACRS depreciation on adjusted basis after 179 deduction | $73,200 | ||
| Balance | $292,800 | ||
| Total 1st year Depreciation | $207,200 | ||
Note MACRS depreciation is based on the following table:
| MACRS Rates | January - September | October-December |
| Year 1 | 20.00% | 5.00% |
| Year 2 | 32.00% | 38.00% |
| Year 3 | 19.20% | 22.80% |
| Year 4 | 11.52% | 13.68% |
| Year 5 | 11.52% | 10.94% |
| Year 6 | 5.76% | 9.58% |
Disclaimer: Certain information appearing on or accessed via our website is provided by Advocate Consulting Legal Group, PLLC., an independent provider of legal and tax advice and, accordingly, is not subject to verification by Diamond. All such information is based on general interpretations of the tax and legal provisions referred to, and should not be construed as specific legal or tax advice or guidance of any kind. Application to specific circumstances may vary. Please consult your tax advisor for more information.
SIFL Calculator
Compensatory Personal Use - When an employer provides an aircraft to an employee, the benefit is taxed under tables prescribed under Regulation 1.61(21)(g), SIFL. Rates for owners and officers are based on first-class commercial airfare adjusted for the size of the aircraft. The income has two components; a mileage charge, and a terminal charge. The mileage charge for a Diamond Aircraft is approximately 14 cents per mile and the terminal charge is approximately $45 per one-way trip. The charge is per person and is generally less than the cost of operating the aircraft. For example, a 300 mile, two-hour trip, with two passengers will have imputed income of $160. For a detailed explanation of how SIFL may increase your deductions on various Diamond aircraft models please click on the following links.
- Own a Business - Diamond DA20 Savings
- Own a Business - Diamond DA40 Savings
- Own a Business - Diamond DA42 Savings
- Run your own personal use travel scenarios
Disclaimer: Certain information appearing on or accessed via our website is provided by Advocate Consulting Legal Group, PLLC., an independent provider of legal and tax advice and, accordingly, is not subject to verification by Diamond. All such information is based on general interpretations of the tax and legal provisions referred to, and should not be construed as specific legal or tax advice or guidance of any kind. Application to specific circumstances may vary. Please consult your tax advisor for more information.
Tax FAQs
This section contains select specific questions on tax treatment of aircraft that Diamond Aircraft buyers typically ask.
Q. I plan to place my aircraft as a leaseback with a flight school. What are the key things I need to consider to be eligible for the tax depreciation advantages?
A. The most common tax issue with a flight school airplane is the designation of the activity as a "Passive Activity". If classified as passive, any tax losses generated may not be available to offset other income. With proper planning, documentation, and an investment of as little as two hours per week, most taxpayers can successfully defend against a "Passive Activity" classification.
Q. My CPA is very skeptical of me buying an aircraft and writing it off. He's never handled an aircraft deal before, and is worried about IRS audits. As I trust him and want him to handle my account, how can I work with Advocate to make this aircraft purchase happen?
A. Advocate has thousands of clients and therefore scores of IRS audits each year. The key to a successful IRS audit is to prepare for it by maintaining documentation as you use the aircraft. Substantially all of Advocate's clients have little or no change upon examination because they are prepared and comply with law.
Disclaimer: Certain information appearing on or accessed via our website is provided by Advocate Consulting Legal Group, PLLC., an independent provider of legal and tax advice and, accordingly, is not subject to verification by Diamond. All such information is based on general interpretations of the tax and legal provisions referred to, and should not be construed as specific legal or tax advice or guidance of any kind. Application to specific circumstances may vary. Please consult your tax advisor for more information.
Key Links
- How to Qualify Your Flight School Aircraft as an Active Trade or Business discussion of the structuring and record keeping requirements to preserve the most favorable tax treatment
- Controlling Sales Tax on the Purchase of Your Aircraft discussion of important considerations relative to minimizing sales/use taxes that might otherwise be assessed on your aircraft purchase
- New IRS Proposed Regulations Liberalize Deductions for Aircraft Entertainment discussion of IRS proposed rules regarding the entertainment use of aircraft by specified individuals
- Defending Your Aircraft Deductions Before the IRS examines strategies to structure aircraft tax management to minimize risks from IRS exams
Disclaimer: Certain information appearing on or accessed via our website is provided by Advocate Consulting Legal Group, PLLC., an independent provider of legal and tax advice and, accordingly, is not subject to verification by Diamond. All such information is based on general interpretations of the tax and legal provisions referred to, and should not be construed as specific legal or tax advice or guidance of any kind. Application to specific circumstances may vary. Please consult your tax advisor for more information.
Tax Disclaimer
Advocate IRS disclaimer: Important Disclaimer pursuant to IRS Circular 230
Disclaimer: Any tax advice contained in this correspondence was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.
