A lot of people think about 1031 exchange being only for real estate. But guess what? 1031 applies to other property - business equipment, collector cars, collectibles such as artwork, gold coins, and most importantly aircraft.
Aircraft are kind of neat in that they are depreciated rather quickly but hold their value relative to the depreciation nicely. So you may have acquired an airplane 3 years ago and depreciated it over the last three years but the value has remained relatively stable.
If you were to sell that airplane to a third party you might be unpleasantly surprised that you now recognize a gain on the sale – especially if you were just going to redeploy that cash to get a new bigger better airplane. So when you’re selling an airplane always think about what your current adjusted basis is and how you can defer the gain on the sale.
The treasury regulations allow you to use an intermediary to sell the relinquished property and apply those proceeds for the purchase of the new airplane. Typically you want to get a plane of equal or greater value, equal or greater equity, and whatever debt you had on the old plane should be offset with new debt on the new plane.
- 1031 Hotline: If you have questions about 1031 exchanges of business property, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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