t h e f i n e p r i n t | Departments professional pilot service is an integral part of the transaction. 4. Rental of property is incidental to a non-rental activity of the taxpayer.
Charter Leaseback Transaction and Passive Activity Loss Leasing a business aircraft to a charter operator has been a common practice in general aviation. The owner receives revenue when their aircraft is flown in charter operations to offset ownership costs, in addition to benefitting from the professional management provided by the charter operator. However, careful consideration should be given to the income tax treatment of a charter leaseback aircraft. Since the leaseback transaction is likely considered to be a passive rental activity, a taxpayer should be prepared to meet one of the exceptions to the passive activity loss rule, listed above, in order to deduct the aircraft losses as an active trade or business loss.
Related Party Leasing It is a common planning strategy to set up a leasing company to own a corporate aircraft. Some would
argue that a leasing company can isolate the liability of aircraft ownership, and in some states, a leasing company can also be utilized to defer state sales and use tax liability. In a recently published Technical Advice Memorandum, the Internal Revenue Service (IRS) determines that related party rental structure may limit a company’s ability to utilize bonus depreciation and the Modified Accelerated Cost Recovery System (MACRS) to depreciate a business aircraft. A careful review of your aircraft ownership structure and overall corporate structure is critical in achieving the desired tax benefits.
possession, command, and control of the aircraft, the owner is not engaging in a taxable transportation service, but is merely leasing the aircraft. Typically, this is referred to as “dry leasing” and revenue from dry leasing is not subject to federal excise tax (FET). Federal excise tax is assessed at 7.5% of all taxable transportation revenue, and the taxpayer is required to remit collected tax to the government and file a tax return on a quarterly basis. A business aircraft can generate significant operational and income tax benefits to a taxpayer. However, careful planning and review of how the various income tax and FAA regulations affect your ownership structure is critical to achieving your objectives.
Federal Excise Tax Internal Revenue Code Section 4261(a) imposes a tax on the amount paid for taxable transportation of any person by air. The IRS has a different definition for taxable transportation than the FAA. For federal tax purposes, if the owner of an aircraft leases it to others for the transportation of persons but retains possession, command, and control of the aircraft, the owner is furnishing taxable transportation within the meaning of § 4261. However, if the owner of the aircraft transfers the complete
Aviation Tax Consultants (ATC) assists aircraft purchasers in acquiring aircraft in a tax efficient manner. Our services include the elimination or reduction of sales and use tax at the time of purchase, maximizing income tax savings, and complying with Federal Aviation Regulations. Cooperation with client’s current tax and legal advisors is welcome and encouraged.
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When it comes to jumbo mortgages, Bank of America has the home financing solutions and exceptional level of service you need. We offer a wide variety of home loan options to suit your financial plans. Our jumbo mortgages provide many attractive features, such as: • Loan amounts up to $5 million1 • Flexible repayment terms to help you better manage your cash flow
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Scott Sullivan Senior Mortgage Loan Officer 720.495.5908 scott.sullivan@bankofamerica.com http://mortgage.bankofamerica.com/scottsullivan
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For loan amounts greater than $2 million: prior to closing, borrower must provide documentation of reserves held in a Bank of America and/or Merrill Lynch account totaling a minimum of 24 months of principal, interest, taxes, insurance (homeowners, hazard, mortgage insurance, etc.) and assessments (homeowners association fees/dues/special assessments) related to subject loan/property. Two separate full appraisals are required. Good or excellent credit required, including proof of recent consistent mortgage payment history. Loan to value, cash out limits, and property type restrictions apply, ask for details. Not available on all loan programs. Other restrictions apply. Bank of America, N.A., Member FDIC. Equal Housing Lender. © 2010 Bank of America Corporation. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. AR102671 00-62-1847D 01-2010
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