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RV cost basis for Capital gains

Auburntsts

Well Known Member
Got kinda an off the wall question for those that have sold an RV. If you built your plane how did you determine your cost basis in order to figure out any potential capital gains as a result of the sale? To be clear I’m not asking whether one should or shouldn’t pay capital gains tax on the profit from the sale. Rather I’m interested in simply how one determines the cost basis of what was originally just pieces parts and sub components that eventually became a single end item.
 
The above reply might be compliant with Australian tax law. It wouldn't be in the us.
 
I'd hazard a guess that even 2000 hours at minimum wage, on top of the cost of every component in the airplane, would be more than the aircraft is worth on the open market. How do you have capital gains on a depreciating asset?
 
I'd hazard a guess that even 2000 hours at minimum wage, on top of the cost of every component in the airplane, would be more than the aircraft is worth on the open market. How do you have capital gains on a depreciating asset?

Well... how about declaring the sale of the plane as a capital loss, hence getting a tax rebate next time you make some actual capital gains...?

Maybe I should try that when I sell my crusty old car...
 
Watching this thread.
Kind of creepy that I was just thinking of this subject yesterday.
Im in CA so it matters even more.
 
You should be able to add the cost of ongoing maintenance and upgrades to the basis, just like you can with real estate.
 
Sorry. It was tongue in cheek.
Internet not the best place to ask for tax advice imho.

Absolutely. This subject has "audit" written all over it. Consultation with an actual tax professional now will likely avoid having to try to justify it to an IRS agent later.
 
So I'm trying to equate selling a completed kit plane to a factory-built plane, car or boat. Your cost basis for a private sell is what you originally paid for it--right? IOW in simple terms if I bought a factory plane/car/boat for $50K sold it for $60K I'd owe capital gains on the $10K profit (again very simplistic view, not accounting for depreciation, etc). The problem with a kit plane is as far as I know there's no "value" assigned to the competed project which in my mind is worth more than the sum of its parts.

Guys on this forum sell planes all the time--just trying to understand the mechanics by someone who's done it.
 
"Value" is irrelevant to establishing cost basis. Your basis is what you spent to acquire it, which is the all the kits and other components purchased to build the plane. Your labor doesn't count.
 
"Value" is irrelevant to establishing cost basis. Your basis is what you spent to acquire it, which is the all the kits and other components purchased to build the plane. Your labor doesn't count.

My CPA and I just had this discussion on a non aircraft project. The circular argument is “you didn’t pay yourself and claim the income did you?”

The only correct answer is what your tax professional tells you.
 
Thanks all! I'm disappointed that most likely the cost basis is the cost of just the parts since you're not selling "just" the parts, but I guess that's a question for a tax pro.
 
My CPA and I just had this discussion on a non aircraft project. The circular argument is “you didn’t pay yourself and claim the income did you?”

Not a tax professional, but I am an attorney and work in finance and deal tangentially with tax issues often. I think this is really the crux of it. You can't claim your labor as part of your basis because you didn't pay for your labor. If you paid yourself, then you would have had to pay taxes on the income. If you could include estimated labor costs in your basis then you would essentially pay no taxes on the portion of the sale price relating to your labor, but you can't receive money for labor without taxes.

The only correct answer is what your tax professional tells you.

This^
 
Thanks all! I'm disappointed that most likely the cost basis is the cost of just the parts since you're not selling "just" the parts, but I guess that's a question for a tax pro.

How about the value is what the insurance says it is.

Or you pay for the appreciation just like you would write off the depreciation.

Surely you have a loss somewhere to write it off. :rolleyes:

or it is/was only worth what can be proven.

All good fun, but it is what the tax accountant says. They get paid the same regardless of the answer, just like it should be.
 
What is the value of the aircraft?

The hull is depreciating year by year up to end of life 40 yr.
The avionics is depriciating by year up to end of life 20 yr.
The engine is depriciated by 12 calender years or 2.000 hr wich ever comes first. And then you have the prop, 6 years or 2.000 hr to next overhaul.
So it all depends.

Good luck
 
What is the value of the aircraft?

The hull is depreciating year by year up to end of life 40 yr.
The avionics is depriciating by year up to end of life 20 yr.
The engine is depriciated by 12 calender years or 2.000 hr wich ever comes first. And then you have the prop, 6 years or 2.000 hr to next overhaul.
So it all depends.

Good luck

Here in the US only business assets can be depreciated for tax purposes (which, by law, excludes EAB) and even then you owe capital gains tax on the sale price minus the depreciated value, when you sell. IMHO another unfortunate fact is that no allowance is made for inflation. Just ask someone who sold a 1966 Ford Mustang for more than he paid for it, in 1966 dollars. Also, this is also ‘hobby income’ (per the FARs). Under the hobby rules net profits are taxed, but net losses are not deductable!
 
A friend told me

When purchasing an aircraft a bill of sale is created to show transfer of ownership from the seller to the buyer. Bills of sale include what the seller was paid in exchange for the plane. But apparently bills of sale for aircraft are commonly done differently.

The first item to fill in is the price of the aircraft, where it says "For and in consideration of $___." To preserve the confidentiality of the transaction, the FAA will accept the phrase “$1 & OVC” (Other Valuable Considerations) in this spot, and most Bills of Sale are filled out in this fashion. source JBA

I am not suggesting that you sell your aircraft for $1 plus OVC but perhaps the sum total of all parts, the whole enchilada, plus OVC who knows what that might be.;)
 
I am not suggesting that you sell your aircraft for $1 plus OVC but perhaps the sum total of all parts, the whole enchilada, plus OVC who knows what that might be.;)

"OVC?". Yes, I threw in 7 handheld GPS units that cost $1AMU each, plus 11 sets of headsets that cost $900 ea, the $5,000 set of spares and fly-away tool kit, custom tie-downs, a cabin cover,......

Clearly I took a big loss on the transaction.
 
Here in the US only business assets can be depreciated for tax purposes (which, by law, excludes EAB) ....

Does this mean that an experimental airplane cannot be used for business travel? In other words, can I fly my RV to business meetings and deduct the travel expenses?
 
What about the building expenses. Portion of the heating bills ( heated the garage that wouldn’t have been heated if you were not building. All the incidentals, sand paper, cutting disc , masking tape and the thousands of other things needed to build the plane. Ever add them up , they add up fast. Just about every day we need to purchase something for the plane while you’re building. All part of the cost of the aircraft as far as I am concerned.
 
Thread creep

can I fly my RV to business meetings and deduct the travel expenses?

Expensing and depreciating are quite different.
We know you can't depreciate it if it is not a business asset but you should be able to write off the expense of a business trip, such as gas, hotel etc.
Would I do it, certainly not.

"OVC?". Yes, I threw in 7 handheld GPS units that cost $1AMU each, plus 11 sets of headsets that cost $900 ea, the $5,000 set of spares and fly-away tool kit, custom tie-downs, a cabin cover,......

Now we are getting somewhere and no one says OVC has to be a tangible but could also be an intangible consideration. Therein lies the rub and the boundaries of your imagination.
 
Part of the definition that allows EAB aircraft to exist is “for education and entertainment”.
Very hard to write off, write down, hobbies.
 
Expensing and depreciating are quite different.
We know you can't depreciate it if it is not a business asset but you should be able to write off the expense of a business trip, such as gas, hotel etc.
Would I do it, certainly not.

Makes sense, thanks for the explanation.
 
A local flying club bought a Cessna a while back and declared the purchase at $20K, and when queried claimed they bought the avionics and interior in a separate transaction for $80K.

They did not succeed in avoiding the taxes on the $80K portion of the purchase.
 
Back to the OP

And, now, back to the OP.... :cool: Todd, our RV7a is in our company name and is primarily used for company business. No need to get into my details, as everyone's circumstances + location are different.

What is important, is you have professional advice and guidance. This includes tax, accounting, insurance, lawyers, etc. Your idea of a deduction or methodology (or some of the "advise" provided in this thread) may not be allowed. But, that's what they're there for, to keep us out of trouble.

Finally, accurate records are important, in a format that applies to your situation and professional advise you receive. I'm just providing a high-level approach, as everyone's circumstances are different. Good luck.
 
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