1031 Exchange Aircraft [Ultimate Guide]

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Not everyone has the privilege of their own private aircraft so for sure 1031 exchange aircraft is not on everyone’s knowledge. Whether it be a propeller plane, private jet, or fleet of helicopters, aircraft possession is usually only under reservation. Usually for the immensely wealthy or a handful of diehard aviation enthusiasts.

With that in mind, when it comes time to sell an aircraft, a lot of capital is going to be around. No matter the age or operating function, planes and helicopters are generally at high ticket selling prices to wealthy bidders.

Here, experienced investors know of a little trick called a 1031 exchange. In this IRS-designated procedure, a taxpayer can evade capital gains taxes on the sale of a large asset by reinvesting the capital in another purchase. In doing so, 1031 exchanges can be useable to “trade” aircraft for other private properties.

Moreover, in this article, we will outline the steps it takes to 1031 exchange aircraft. In doing so, we will illustrate mineral rights and royalties as a great property option for investors looking to maximize the sale of an aircraft.

How to Sell an Aircraft

Even in the third decade of the 21st century, we still seem far away from the cartoon future of flying cars everywhere, owned by everyone, like in The Jetsons. With a limited market, this proves to make private aircrafts somewhat difficult to sell. Here, we recommend working with a broker to help facilitate the sale. Once the deed is complete, any registration or FCC licenses in the previous owner’s name must be removed.

Determining the Value of Your Aircraft

Most private aircraft actually retain their value quite well. So long as it was always in good operating condition and was purchased from a reputable seller, the price you paid for your aircraft may actually be quite similar to the price that you sell your aircraft years later. FOr this reason, jets, planes, and helicopters are popular business assets for reserving large amounts of money within the organization’s portfolio.

The value of an aircraft is determined by the following attributes:

  • Type of aircraft
  • Make and Model
  • Size
  • Age
  • Condition
  • Fuel efficiency
  • Added or removed features
  • Branded or not branded exterior
  • Navigation features
  • And more

Of course, the true value of any aircraft is only the amount that someone is willing to pay for it. While you may own your aircraft privately or as a part of a company’s asset portfolio, an aircraft can then be sold to individuals or businesses large and small. With that said, planes and helicopters with significant mileage are usually deemed unfit for commercial use by many private businesses and government regulations.

Taxes Paid on the Selling Aircraft

As we mentioned earlier, planes, helicopters, and jets sell for an awful lot of money. Whether it be a one or two comma deal, former aircraft owners can expect a bulge influx in cash if the time comes when they decide to sell. Unfortunately, with every dollar earned, another portion of that dollar may be taxed by local, state, and federal governments.

When selling an aircraft, you can expect to pay:

  • Personal Property Tax and Registration Fees
  • Depreciation
  • Passive Activity Losses
  • Federal Income Taxes
  • Capital Gains Taxes
  • Sales Taxes
  • Local Taxes
  • And More

When all is said and done, aircraft sales can come with nearly 40% of the capital going to taxes. Naturally, one of the best and most common ways to reduce this amount from totaling beyond its worth is to 1031 exchange aircraft.

1031 Exchange Aircrafts

In a 1031 exchange, aircrafts sold and replaced with an asset of equal or greater value will result in the complete deterrence of capital gains taxes that would have been otherwise paid. Whereas it is possible to only partially eliminate some of the capital gains taxes paid on the sale of an aircraft, most investors choose to “trade up” for another aspect that is either functional or financially favorable.

Aircraft Like-Kind Properties

In order for a 1031 aircraft exchange to be valid, an aircraft must be replaced with a “like-kind” property. The IRS is pretty open to what can be considered similar, largely viewing most property assets as in the same vein. With that being said, helicopters, planes, and jets can be used in a 1031 exchange to purchase:

  • Homes
  • Apartments
  • Convenience Stores
  • Farms
  • Water and Ditch RIghts
  • Mineral Rights and Royalties
  • And more

1031 Exchange Aircraft – Timeline

Although it may take some time to find the right buyer, as soon as the sale of an aircraft is officially complete, then the taxpayer’s eligibility for a 1031 aircraft exchange begins immediately. From here, at least one potential property must be identified for purchase within 45 days. Following this, a new property must be purchased within 180 days (or roughly half of a year) in order to avoid paying capital gains taxes on the sale of their aircraft.

For additional requirements, please see our 1031 Exchange Rules and Requirements Page.

Using an Intermediary to 1031 Exchange Aircraft

Obviously, deadlines must be met and paperwork must be filed to complete a successful 1031 aircraft exchange. While both time-consuming and laborious with extreme attention to detail required, it is recommended that investors work with a 1031 exchange intermediary to maximize the sale of an aircraft.

What to 1031 Exchange Aircraft For

In the United States of America, private landowners can buy and sell their properties subsurface in the form of mineral rights. With mineral rights, the land can then be under leasing to oil and gas companies. They are companies looking to find, extract, and sell the natural resource found beneath the earth’s surface. Once it’s sold, mineral rights owners will then receive mineral royalty payments as a fixed percentage of the operation’s income.

Conclusion

When it comes time to 1031 exchange aircraft, purchasing mineral rights is one of the best portfolio adjustments. That is exclusive to a few select countries. In doing so, mineral rights can generate highly profitable streams of income. That is through monthly royalty payments or another large lump sum in a future sale.

If you have further inquiries on 1031 exchange aircraft, feel free to reach out to us here.

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