Aircraft as a 1031 Exchange
1031 Exchanges Done Right Since 1991
A 1031 Exchange can have tremendous benefits to an aircraft owner when replacing their aircraft. While the 1031 Exchange is most commonly used for real estate transactions, other depreciable assets such as aircraft may qualify for exchange as well.
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COMPARING A SALE TO AN EXCHANGE
A business owner owns a 1978 Cessna Citation 550 and plans to sell it to purchase a 2000 Cessna Citation Excel. The following example shows the difference between if the owner were to exchange the planes, or just right out sell:
|Original Purchase Price of Cessna:||$2,000,000|
|Improvements made during ownership||$500,000|
|Basis for Depreciation||$2,500,000|
|Basis after 7 years of Depreciation||$0|
|Without 1031 Exchange||With 1031 Exchange|
|Taxable gain recognized||$1,000,000||$0|
|Tax (35%) due to depreciation recapture||$350,000||$0|
|Cash available for purchasing aircraft||$650,000||$1,000,000|
TYPES OF EXCHANGE
The delayed exchange is common and straightforward: the Exchangor relinquishes (sells) aircraft property before he acquires the new aircraft property. A delayed exchange usually starts at $750.
The Reverse Exchange allows an Investor to acquire an aircraft today, when an excellent investment may be available and sell the other aircraft later when a better price might be obtained. A reverse exchange usually starts at $3500 and goes up from there, depending on the circumstance.