Discussion:Rental of hangar with no profit motive
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| As to whether an airplane hangar is 39-year MACRS property, before MACRS went into effect, PLR 8510014 held that an airplane hangar is 18-year ACRS property (real property), so the 39-year classification is probably correct. | As to whether an airplane hangar is 39-year MACRS property, before MACRS went into effect, PLR 8510014 held that an airplane hangar is 18-year ACRS property (real property), so the 39-year classification is probably correct. | ||
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| + | {{ForumReplyPost|UserID=RoyDaleOne|Date=5 November 2009|Text=http://www.atxcommunity.com/index.php?showtopic=5966 | ||
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| + | Read all about it, Draconian tax law.}} | ||
Revision as of 19:23, 5 November 2009
Discussion Forum Index --> Advanced Tax Questions --> Rental of hangar with no profit motive
Discussion Forum Index --> Tax Questions --> Rental of hangar with no profit motive
| 5 November 2009 | |
| I had this question tagged onto another that was tangentially related, but moved it to its own thread.
A client emailed & then called me this morning. He is contemplating the purchase of a hangar for $200,000. For five months of the year he parks his plane lakeside at his waterfront home and will rent out the hangar. The other seven months he will move his plane into the hangar. Wants to know the tax treatment. The situation is analogous to a vacation property, except that CodeSec 280A applies only to "dwelling units", which the hangar is not. CodeSec 183 (Activities not engaged in for profit) therefore comes into play. My question is, does the rental income get reported on Schedule E, along with the prorated expenses, subject to the limitation of the rental income, or does the income get reported on Form 1040, Line 21, with the corresponding expenses being deducted as Misc Itemized Deductions (which is to say they are lost, since they are unlikely to exceed 2% of AGI). I am inclined to believe the treatment should follow the hobby loss treatment of Line 21/Sch A since the transaction clearly is not being engaged for a profit. (He does state in his email that after 10 years of renting it out for 5 months, he intends to lease it out full-time, but I am not certain if that would hold any sway on the current treatment.) Thanks for any insights. | |
| 5 November 2009 | |
| if it is a not-for-profit rental, I would agree with the 183 treatment you described
but look at the benefit - he will still be significant dollars ahead after tax compared with not renting it at all | |
| 5 November 2009 | |
| so can't you just convince him to have a profit motive? Then you could use Sch E and allocate the appropriate expenses to the rental period. Is a hangar 39 year property? | |
| 5 November 2009 | |
| How can a profit motive be argued, if the hangar is 7/12ths personal use and only 5/12ths rental use, assuming there is no way to cover all of his annual expenses through only 5 months of rental income? Seems to me to be a hard sell to convince anyone that it is primarily profit motivated when his own plane is sitting there occupying the space he would otherwise be able to rent out.
I haven't researched the life of the hangar, but I think it is 39 years. The other thread I was on said it was, but I have not confirmed that point. | |
| 5 November 2009 | |
| you aren't trying to cover all of the expenses from rental income, just 5/12 of them | |
| 5 November 2009 | |
| This sounds similar to a seasonal rental, such as a condo in a ski area or a vacation home in a resort area. See Vandeyacht v. Commissioner, T.C. Memo. 1994-148 (rental of waterfront condominium and house in Sarasota, Florida was not engaged in for profit) and Rivera v. Commissioner, T.C. Summary Opinion 2004-81 (ski-season rental of property in Truckee, California was not engaged in for profit).
As to whether an airplane hangar is 39-year MACRS property, before MACRS went into effect, PLR 8510014 held that an airplane hangar is 18-year ACRS property (real property), so the 39-year classification is probably correct. | |
RoyDaleOne (talk|edits) said: | 5 November 2009 |
| http://www.atxcommunity.com/index.php?showtopic=5966
Read all about it, Draconian tax law. | |
