frankh

frankh

Well Known Member
Hi guys,

So I just sold the airplane I built (first flew in 2006) and I guess I probably made about $10,000 if you look at what I actually spent vs what I got for her.

I don't have all the receipts... most of the big ones I have.

So whats the deal on figuring how much I owe Uncle Sam?

1) Do I have to provide a receipt for EVERYTHING that is part of the cost basis? or will reasonable estimates do?
2) Can I figure any of my labour into the cost basis.. e.g min wage for 1400 hours?
3) what about hangar rent/insurance over the last 7 years?

Thanks

Frank
 
Sounds like you need to talk to a CPA. A good one should be able to calculate a loss if you involve labor in it.
 
The answers are no, no, and no.
This falls under the hobby rules, where you pay tax if you make a profit (even if the profit is due solely to inflation) but you get no credit if it's a loss.
If you made any upgrades (avionics, etc) you can add that to the basis.
 
If you count any labor, then you should have paid tax on that labor when you did the work, so no adjusted basis for labor.

Phase 1 flight testing costs should be added to your basis including hangar costs up through the end because it is required by law that you do that, so the plane is less valuable without that done because it is not a "complete" plane.

Upgrades and probably even repairs can be added to the basis as well, although not routine maintenance.
 
I just hate having to earn $350k to pay for a $100k airplane. I don't remember writing off a loss on my car when it depreciated 50% in the first three years.
 
daviid said:
Sounds like you need to talk to a CPA. A good one should be able to calculate a loss if you involve labor in it.
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The trouble with counting labor cost to get to a loss is you'd have to claim the as income and have paid taxes on it. I went through this with a CPA some years years ago with a house I build and sold.
 
Here's how....

....I think it goes. First, they just assume you should pay tax on the entire sale amount lets say $100k. That's the number they focus on, then you must prove the cost of the kit, hangar rent, insurance, avionics, interior, paint, every rivet, screw, all sub kits, etc. Subtract all that i.e. the ones you can prove without a doubt, and the diff is your taxable, either income or cap gains. OTOH, how many folks jump thru the hoops at all? Hmmm... I wonder how many IRS agents build RV's and are on this forum??? Gotta be at least a few who aren't busy snooping on others... Oops, hope that's not political... Sayin' JC
 
Some of the comments indicate to me that they should go to someone with knowledge of taxes, instead of a CPA, or maybe better yet do a Turbo Tax run and figure it out yourself..
 
I agree with Jesse. It is fair to count phase 1 costs, plus other "construction" costs such as tools, hangar and insurance during the build. These must add up to about $10K. So now you've made no profit. You cannot deduct a loss on hobbies, but neither do you have to file any forms if you did not have a net profit. Forget about it.

This is just income taxes, of course. The new buyer may have to deal with sales and property taxes and other fees.
 
Yes but

I would assume that a sum of that size hitting your account would raise a red flag inviting an audit.

So I want to be upfront and fair but just because I can't produce a receipt for the BA prop I got does not mean I didn't buy one.

So I would assume a reasonable estimate for the cost of such things would be "admissible"..:)
 
Take a close look at how the aircraft was equipped and make your best estimate of what it cost. For example, the absence of a receipt on the prop isn't a show stopper. You can probably independently document that the aircraft did, indeed, have a BA prop. Based on your build log and other "contemporaneous records", you can establish when you purchased it. Dig up the then prevailing prices - or, use the current price and something systematic such as CPI history (readily available on line) to compute the then value based on today's price.

After you've gone though the panel, the motor, all the FWF, the ELT, and other mods you made along the way don't be too surprised that you sold at a loss. There is usually more than you realize.

Don't include your labor unless you included that value as taxable income in some earlier year.

My suggestion would be to get a comprehensive list together with guesstimates and then set about refining the values. If it helps, call Vans - they can send you PDF files of all your order history. If I recall, you can get much of the Aircraft Spruce history to download also.

Dan
 
Cool

Thanks Dan,

I went through my files at work and found another boatload of receipts too so I bet I'm not as short as I thought I was.

Good ideas on the receipt history too..:)
 
All of this boils down to an audit, should you get one for the year that you claim the gain. Receipts do you no good except to records your actual gains and then to substantiate that in the case of an audit. I would recommend getting together as many receipts as you can or put together a website shopping cart where you got a lot of the stuff with as many things as you can remember buying, especially big ticket items. A receipt is the best, but a dated shopping cart printout showing a list of items purchased and the total is better than a note saying that you think you spent about a certain amount for parts. As was already suggested, a call to Van's with your order history, a printout of your Aircraft Spruce order history, credit card history for things like that.

Also, tools are not deductible unless they went with the plane.
 
Thanks

Yes I totalled up the receipts I have at work plus the ones I have from home (memory).. I almost certainly made a small loss so thats cool.

There are a few things I don't have, like the GNS 430 plus the WAAS upgrade, the $1500 of paint I bought But I should be able to get close enough by back dating catalogue values etc.

Frank
 
I would also be curious whether "depreciable tools", or tools with a finite life based on number of uses, which were fully or partially depleted during the build, would be considered part of the basis. For instance, how about all the sandpaper and scotch brite pads? MEK? Rags? Masking tape? Drill bits?

Certainly anything not in the kits that flew away with the airplane would be considered basis - fuel tank sealant, primer, extra/replacement fasteners, wire, terminals, circuit breakers, hoses, fairings. The list goes on and on.
 
hydroguy2 said:
is this really an issue....I guess I never thought about it before.
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I'm wondering this too. When I sold my Cherokee I didn't even think about it... but then I sold it for less than I paid for it too and have documentation to prove that.
 
Issue?

I paid 11,000 bucks into my checking account once and was told the bank was required to inform the IRS anytime a deposit of $10k or more was made to an account..Yipes.

Anyway, I found receipts (Vans had a full record that they emailed to me) for a total of just over $72K

I then went thru my old check stubbs and found another $5900 or so.

I then found a quote from John Stark avionics (same place I made checks out to) for another $7k.

So all that came to a little more than what I got for the airplane..

Then I had other SWAGs for $3k.. then hangar rent on top during the build (check stubbs) for $3200.

I'm assuming I'm clear of the IRS at this point... pointed out I have all my build pics and build log etc.

Frank
 
I believe the government is only informed if you make a transaction of $10,000 or more in cash, not via check or other forms if payment.

On items like scotchbright pads, sandpaper, drill bits, etc, they should be treated as materials/supplies, not tools, and thus would be added to the basis. If its a business, you could depreciate tools, but I don't know if that would work for a hobby.
 
Just to follow up

I spoke to the CPA this morning. He told me the information I had collected (receipts, check stubbs email with quote etc) was sufficient documentation to prove the cost basis of the airplane.

I just need to keep it in a safe place if ever there is an audit.

Frank
 
frankh said:
I paid 11,000 bucks into my checking account once and was told the bank was required to inform the IRS anytime a deposit of $10k or more was made to an account..Yipes.
Click to expand...

I believe the suspicious activity report is required at 9,900 actually. It is lower for other forms of cash transactions, for example 3,500 for money order purchases or wiring at western union.
 
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