If you read what I wrote you’ll see that’s exactly what I said. However a huge slice of debt is via shorter term loans on commercial real estate. Even though the rate is fixed for three or five or seven years, once the term expires and the balloon payment is due it will reset to market rate which is now more than twice what it was over the last few years.

Every aircraft loan I have had has been fixed for 20 years and I have had 5 of them,I doubt that many are coming due in the next few years.

Chuck,

For what it is worth, yes the 1031 solution went away for aircraft (stayed in place for real estate) but as long as you sell and buy (or buy and sell) your old plane and replacement plane in the same tax year the transactions will offset each other. In other words, you don't need the 1031 to avoid paying recapture provided that you buy your replacement plane in the same tax year.

For example, let's say you sell a $500k plane in June and then buy a $500k plane in September, you won't have to pay recapture on the sale. If you buy a $300k plane in September then you will pay recapture on the $200k difference and if you buy a $1mm plane in September then you will not only not pay recapture on the $500k sale but you will also have $500k of newly available depreciation available to you to use.

-Neal

Neal,

Good point. Maybe more aircraft will hit the market early in the year to allow plenty of time to make a replacement acquisition?

That strategy only works for the next six weeks.

Next year you only get an 80% bonus depreciation, so you'll pay capital gains taxes on 20% of the recaptured amount (assuming your basis is zero, and your sale and purchase were the same price.)

One big advantage of the 1031 was that it could span two tax years. For the depreciation trick to work, both transactions must occur in the same tax year.

At the risk of picking nits, recapture in your example above would be paid at ordinary income tax rates up to the original purchase price. Anything above the original purchase price would be paid at capital gains rates.

Additionally, it is my understanding that if you buy a plane next year you will actually have 84% depreciation available to you (80% bonus depreciation plus 20% of the remaining basis due to MACRS).

-Neal

At the risk of picking nits, recapture in your example above would be paid at ordinary income tax rates up to the original purchase price. Anything above the original purchase price would be paid at capital gains rates.

Additionally, it is my understanding that if you buy a plane next year you will actually have 84% depreciation available to you (80% bonus depreciation plus 20% of the remaining basis due to MACRS).

-Neal

Nor am I and I completely understand! But you weren't giving bad advice at all in my view - I was just "smoothing it out" a bit

-Neal

I like hearing these considerations as I will not follow them blindly, but it gives me some knowledge to talk to the accountants and attorneys about.

thanks for the information.

Bill,

I highly recommend that you talk to attorneys and accountants with an aviation background and focus. The good ones will work with (and not in lieu of) your CPA/accountant and attorney.

-Neal

There are also a lot of charlatans in the "Aviation Law and Accounting" space, so be careful

If someone is going to prepare forms and schedules, but refuse to file them for you- that is a huge consideration

Behold, the $8M King Air 260. Bloody hell.

https://www.controller.com/listing/for- ... p-aircraft

[ Unless you do a 1031 which is NOT available for planes today. Depreciation only delays the due date of your tax bill, does not eliminate it. Fly safe

Edit 1. Consider it an interest free loan of the tax owed, to use till you sell.[/quote]

Chuck,

For what it is worth, yes the 1031 solution went away for aircraft (stayed in place for real estate) but as long as you sell and buy (or buy and sell) your old plane and replacement plane in the same tax year the transactions will offset each other. In other words, you don't need the 1031 to avoid paying recapture provided that you buy your replacement plane in the same tax year.

For example, let's say you sell a $500k plane in June and then buy a $500k plane in September, you won't have to pay recapture on the sale. If you buy a $300k plane in September then you will pay recapture on the $200k difference and if you buy a $1mm plane in September then you will not only not pay recapture on the $500k sale but you will also have $500k of newly available depreciation available to you to use.

-Neal[/quote]

As usual Neal is spot on right down to the tax rates. Have to buy that next plane and be depreciating it for that to work though. Sooner or later we have to pay the piper, (see what I did there?) Succumbed to tailwheel-itis, retired and left the T-prop behind. Miss it though. Sure would have been nice through Covid.

I have four piston airplanes which I need like another hole in my head. I bought them all before any run up. Still, I hope that the predictions of a big decline in aircraft prices is wrong be it piston or turbine even though I have no intention of selling.

Not putting words in his mouth, but Neal told me two years ago that he felt the correction, when it came, would be moderate. Prices were unreasonably depressed three years ago. They are some inflated now. I would just like to see a happy medium.

A big correction in the market would indicate that funny money drove the price increases and was used for down payments, not full purchase price. That would simply be a bad thing for the aviation market and the economy.

Financing anything on an obvious wave of speculation or frenzy is just stupid.

I fervently hope that the people "in the know" like Chip and Neal are correct that much of the increase was lasting value. I don't get any satisfaction from other people's loses.

Jg

I think Chip has a point that Carter-era airframes are retiring faster than they can be replaced.

Add a permanently right-shifted demand curve post-covid .... makes a huge crash unlikely.