Today TaxMama® hears from NCTaxLady in the TaxQuips Forum, with an interesting situation. (Let me summarize) “My client bought an airplane in June. He used it 11 times and rented it out 5 times. How do I handle the reporting of this? And should he put the plane into an LLC?”
First of all, let me answer your last question first. Yes, if I were renting out an airplane – which some fool could mis-use and accidentally kill himself…
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I would put it into an LLC. Definitely. (Although, most pilots are much more meticulous about the aircraft they use than drivers are about their cars.)
OK, now the rental. He owned an airplane for over 6 months and rented it out 5 whole times?
Does that sound like a business to you? Personally, that sounds like a not-for-profit rental.
Report the income on line 21 of the Form 1040.
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Report expenses on Schedule A, (misc deductions subject to 2%) based on a proportion of the number of hours rented divided by the total hours used. (He has logs – he MUST have them) Only deduct the proportionate expenses up to the total income.
When he takes renting the airplane seriously and makes it available full-time and actually rents it a substantial portion of the year,… then, you can look at this as a Schedule C rental. He will have to provide insurance, maintenance services, (some fuel – though the renters are generally required to refuel the plane), parking fees/hangar space (whichever), etc.
If you are looking for detailed information about the tax ramifications, here’s an interesting Pilot’s Guide to Taxes by the AOPA. Pay special attention to the part about Aircraft Leasing. It’s very good.
And remember, you can find answers to all kinds of questions about how to handle tax issues for private aircraft and other tax and business issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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