Plane purchase via small business pending early retirement?

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I read Philip's "Aviation for Early Retiree's" article back when it
was originally written, and have come back to it now and then - I
enjoy that sort of dream.

For most private aviation fans, buying a new (or new-ish) plane such
as a DA40 is a pleasant fantasy. But after the daydream, the stark
reality of high costs intrude.

Let's say I'm a single, middle-age techie with a secure full-time job,
no debt, and substantial savings (for common folk, that is). I could
retire a few years earlier, or I could buy a plane and get in a few
years of training and practice first. I'm sure I could buy a well-worn
plane and retire early anyway, but I'd find ownership of a modern,
low-hour plane to be more compelling in retirement.

I've heard it said that an overwhelming number of these sorts of new
purchases are made by small business owners that can write off a
substantial part of the costs as a business expense. A popular-press
article posited the case of a dentist who needs to fly to a few
conferences, etc., as being whole-hearted justification for this sort
of write-off (sounds a bit sketchy to me).

The crux: I expect to earn ~$100k per year in consulting fees over the
next few years, immediately prior to early retirement. I therefore
wonder if I have an opportunity to spend pre-tax dollars on a plane
(e.g., under the Section 179 tax code) and training, etc. Business use
would be legitimate as far as it goes, but similar in profile to that
of the proverbial dentist.

What realistic scenarios would make this work? Or are any tax savings
not worth the risk and trouble (and my pleasant little dream gets

Thank you.

-- N C, May 20, 2009


The plane is no different than a car. To the extent that it is used for business travel, you can deduct it. If 70 percent of your trips are business, you deduct 70 percent of the cost of the airplane, including depreciation. If you get into an argument with the IRS over what constitutes business use, it is helpful to have a diary of the business trips taken, the people met with, etc.

Someone who does not do a lot of business travel yet wants to deduct the plane would usually lease the airplane to a flight school.

-- Philip Greenspun, May 20, 2009

Phil's response is correct. Here are some of the mushrooms.

- You have to keep even more paperwork than the FAA requires, and you need a tax professional that understands this part of the code. If you already are doing this for consulting, no big deal.

- You have to have no less than 50% business use, and no more than 25% each for maintenance, training, and charity flights. (get your ticket before you buy if, even though it would be much safer and better to do the opposite for every other reason).

- Personal use isn't as subsidized as it use to be.

- If you stop using the plane for business because either you aren't getting the business you predicted, or if you even stop having enough business trips to keep the plane, and yourself, in the air enough to keep IFR safe, then you start triggering recapture when you try to stay current and safe. My tax professionals have been unable, or unwilling to tell me what this will cost me. They simply cover their arses with warnings and never answer any of my hypothetical scenarios of less than 50% business use. The tax rules were changed ostensibly to get at CEO's and other "fat cats", but of course, it was the high earners who aren't truly rich who actually get nailed. (I have parked my plane and am trying to sell or trade down).

- The tax pro's are all happy to help us plane broker types sell you on the deal, but they really never are clear about the back end. As far as I can tell, in three years, you are going to have to buy the plane back from the business, and payback most of what was written off anyway, or stop flying it. That's a change from a few years ago, and they don't bother to grandfather the rules changes so you get lovely little surprises from your tax guys on a regular basis.

- Leasebacks can be great, or nightmares. YMMV. At any rate, the insurance company and the school/mechanic usually make money, and you may or may not. Avoid being the guy with the different plane. If the school you want to lease with is a Cessna center, buy a Cessna, or don't play. Same for Diamond, or whatever. Also, don't compete with the owner who owns too much of the fleet himself. And lastly, don't buy from a guy who is also the leaseback school unless you have a helluva contract with really nice terms. We had a local Cessna guy who had a great reputation of burning folks on both ends and leaving them with a beat up plane, no income, big maintenance bills, etc.)

I would love to tell you that it's the fault of the Red or Blue, but in reality, both sides have basically stuck with a plan to subsidize manufacturing while screwing you on the back end because individual owners of piston planes used for business are now a minority of a minority of a minority (so no one in power could care any less).

So, unless you are pretty sure about your consulting company's biz plan, and how much hours that will generate for you to fly, then I would stay away from a new plane that costs more than you would spend otherwise. Buy something you could otherwise afford, and take the write offs as gravy.

-- Eric Warren, May 21, 2009

Thank you Philip.

Special thanks to Eric for relating his personal experience and insight. You have put words to my vague, uninformed suspicions, and your last paragraph is one I will take to heart.

Thanks again.

-- N C, May 21, 2009

yes this time

-- ejaz saleem, September 6, 2009