When an aircraft is in the possession of a group of people and is operated exclusively for personal use, the form of co-ownership has little impact on income tax. As a general rule, transactions do not result in deductions, depreciation is not permitted and a permanent loss available does not result in a tax deduction. If the aircraft is eventually sold profitably, it is subject to capital gains tax, as long as the final product exceeds both upfront costs and improvements. An associated LLC is generally taxed as a partnership. However, the LLC may choose to be taxed as an organization, either under Sub-Chapter C or Sub-Chapter S. Although co-owners can make reasoned decisions within a wide range of vehicles, the FAA imposes some surprising, if not totally irrational, restrictions on condominiums. Most of the perceived disadvantages of the aviation partnership (usually the result of partner disputes) are minimal and can be largely avoided by conducting such a partnership with a clear understanding of the expectations and commitments of all parties involved. The appeal of an aeronautical partnership is easily visible and can be monitored individually, either by one of the many companies developing aviation partnership programs or with the help of an experienced industry expert. The concept of condominiums is very simple.
There is nothing but two or more people who share responsibility for owning an aircraft. If you divide the cost of owning an aircraft among multiple owners, their costs decrease. The apparent simplicity of this agreement is one that attracts a number of aircraft owners to a condominium agreement. The sale of an interest in an aircraft-owned partnership normally results in a normal income treatment to the extent that the amortization of the aircraft tax is greater than an economic amortization. Subject to certain partnership elections, the purchaser of an interest in one company is generally entitled to strengthen the underlying aircraft interest base and begin to depreciate its proportionate costs regardless of the remaining bases of the other partners. An entity taxed in Sub-Chapter S provides for a debit charge to owners rather than an agency-level tax. Although S-companies are similar to partnerships in this regard, an important difference is that S-companies are not able to distribute certain revenue and loss items between shareholders and co-owners; all items are allocated proportionally. The sale of shares in an S company holding an aircraft generally leads to a capital gains tax and not to the seller`s real win over ordinary income.
However, the buyer generally cannot align the base of the underlying aircraft with its new purchase price. The sale of a condominium interest in real estate is treated as a sale of physical personal property and is generally subject to the state`s sales or use tax. Each time a portion of the aircraft is sold, a taxable case occurs and a turnover tax may be due for at least that part of the property. Several states have exceptions for the sale of aircraft, but the majority will tax each transfer. When the ownership of a business is held, it is the shares, shares of companies or shares of a member that are sold, not the underlying asset. At the time of the sale, the companies are generally considered to be intangible assets exempt from VAT. If one or more users of the aircraft intend to spend it on commercial use, the consequences of income tax in the form of the condominium become critical. Co-owners of commercial real estate are generally taxed as partners in a partnership, whether or not they have a formal partnership agreement. Like partners acting under a formal agreement, co-owners can normally allocate income or deductions for income tax purposes, provided these endowments are in accordance with the economic agreement between the partners.