Aircraft Donations - The how's and why's
DISCLAIMER: This article is not intended to be tax advice because you need to speak with a CPA familiar with the TCJA (SEE 26 USCS §170) about the timing, amount and manner of a donation to ensure maximal value.
The how’s and why’s
For many, the idea of donating such an expensive asset is difficult to grasp. But when considered against the costs and effort associated with servicing and operating an older aircraft with upcoming inspections, near term life limited parts and dwindling new parts inventories, the option of donating your aging aircraft may start to make sense. Here is an article I co-wrote with another aviation professional on the 'hows and whys' of donating aircraft.
Original Linkedin Article: https://www.linkedin.com/pulse/aircraft-donations-whys-hows-john-t-van-geffen
Aircraft Donations - The how’s and why’s
There are a lot of reasons why you might consider donating your aircraft:
· Market value of the aircraft declined excessively and/or repairs costs have multiplied;
· New regulations put the aircraft out of the market; Specifically, if you haven’t met the ADS-B equipment mandate by January 1st, 2020, your aircraft will be grounded. The cost of upgrading your aircraft and storage fees along with the loss in value will make donating convenient.
· Aircraft has been AOG and/or on the market too long;
· Excessive investment may be required because: (i) the aircraft cannot be flown for mechanical or other reasons and it is too costly to bring back to an airworthy condition; (ii) an expensive major inspection is coming soon; (iii) a major avionics upgrade(s) required; (iv) expensive engine overhaul; (v) expensive landing gear overhaul
More importantly, your donated aircraft provides a TAX DEDUCTION, which may be a good incentive for someone who wants to get rid of an aircraft.
There are numerous different institutions to whom you can donate your aircraft. We have a list of some of these institutions at the end of this article. Some charitable organizations will even repair and refurbish your aircraft (if economically feasible) to allow you to claim the highest possible Fair Market value (“FMV”).
By way of background, under the Internal Revenue Code taxpayers may deduct contributions made to qualified charitable organizations. It is up to you to make sure that you are donating your aircraft to a nonprofit organization in compliance with IRS section 501(c)(3). We recommend you to read the IRS publications Donor's Guide to Vehicle Donation and the Publication 526 Charitable Contributions. Both documents contain useful information to understand the main requirements for donating an aircraft.
Because of the value of aircraft (over $5,000), a donation is likely to qualify you for an itemized deduction—i.e., the total value of the taxpayer’s itemized deductions must exceed the standard deduction for the year before there is any real benefit from a tax standpoint. The “standard deduction” is the amount taxpayers can subtract from income if they don't list “itemized” write-offs for mortgage interest, charitable donations, state taxes and the like.
For 2019 the standard deductionrose to $12,200 for singles and $24,400 for couples.
For those not following current tax law, the lay of the land for charitable donations changed with the Tax Cuts and Jobs Act of 2017 (TCJA) which has been predicted to have a negative impact on charitable giving because the increase in the standard deductions means fewer individuals will be able to itemize, which in turn means fewer charitable deductions. There were additional proposed regulations (83 Fed. Reg. 43563) issued on August 27, 2018, that could also affect charitable giving.
You need to work with your CPA when discussing the pros and cons of donating your aircraft because the value you receive for itemized donations is based on various income limits that apply based on (i) the type of gift, (ii) the type of charity involved, and (iii) whether the gift is “to” or “for the use of” the charity. (SEE I.R.C. § 170(j), Treas. Reg. § 1.170A-8(a)(2).)
Aircraft appraisal for aircraft donation
Generally, if the claimed deduction for an item or group of similar items of donated property is more than $5,000, you must obtain an aircraft appraisal made by a qualified appraiser. There are some exceptions where you do not need an aircraft appraisal, but it will depend on the use that the charity will give to your donation.
More importantly, it is not the charity’s obligation to determine FMV, that responsibility falls on the donor, so it is important that you work with the charity when receiving your written acknowledgement as you want to ensure you are going to receive the maximum FMV for your donation.
Be wary. Most charities will simply sell any donated aircraft which could limit your deduction to the gross proceeds from the sale (unless the charity certifies that it intends to (i) make significant use of the aircraft before sale, (ii) materially improve the aircraft, or (iii) sell to a needy individual at discount below FMV).
We recommend you use a trained appraiser for determining FMV for your aircraft because, while there are commercial firms and trade organizations that publish average prices for each make, model and year, it is often difficult to account for different avionics, unusual miles, physical conditions and the current market conditions.
More importantly, these trade publications are not “official” in any sense and a FMV derived from only trade magazines without any additional support could be challenged, or simply ignored, by the IRS.
Quoting IRS Publication 561 (April 2007), “The weight given an appraisal depends on the completeness of the report, the qualifications of the appraiser, and the appraiser’s demonstrated knowledge of the donated property.”
According to Publication 561, Determining the Value of Donated Property, a qualified aircraft appraisal is an appraisal document that: (i) Is made, signed, and dated by a qualified appraiser in accordance with generally accepted appraisal standards, (ii) Meets the relevant requirements of Regulations section 1.170A-13(c)(3) and Notice 2006-96, 2006-46 I.R.B. 902, (iii) Relates to an appraisal made not earlier than 60 days before the date of contribution of the appraised property, (iv) Does not involve a prohibited appraisal fee, and (v) Includes certain information
Publication 561 state that "a qualified appraiser is an individual who meets all the following requirements:
1. The individual either has earned an appraisal designation from a recognized professional appraiser organization for demonstrated competency in valuing the type of property being appraised or has met certain minimum education and experience requirements...For property other than real property, the appraiser must have successfully completed college or professional-level coursework relevant to the property being valued, must have at least 2 years of experience in the trade or business of buying, selling, or valuing the type of property being valued, and must fully describe in the appraisal his or her qualifying education and experience.
2. The individual regularly prepares appraisals for which he or she is paid.
3. The individual demonstrates verifiable education and experience in valuing the type of property being appraised. To do this, the appraiser can make a declaration in the appraisal that, because of his or her background, experience, education, and membership in professional associations, he or she is qualified to make appraisals of the type of property being valued.
4. The individual has not been prohibited from practicing before the IRS under section 330(c) of title 31 of the United States Code at any time during the 3-year period ending on the date of the appraisal.
5. The individual is not an excluded individual.
Can you deduct appraisal fees?
According to publication 526 you cannot deduct as a charitable contribution any fees you pay to find the fair market value of donated property. But you can claim them, subject to the 2% of adjusted gross income limit, as a miscellaneous itemized deduction on Schedule A (Form 1040).
How can we help?
For legal services regarding your aircraft transaction, please contact:
Partner, Avialex Law Group, LLP
For aircraft appraisal services, please contact:
Accredited Senior Appraiser, ASA (American Society of Appraisers)
Comply with USPAP (Uniform Standard of Professional Appraisal Practice)
9+ years Business Valuation - Transaction Advisory Services - Ernst & Young
This is a nonexclusive list of museums, charity institutions, non-for-profit and foundations you can contact about donating your aircraft. We also recommend doing a search in your local area.
o Academy of Model Aeronautics, (800) 435 9262, modelaircraft.org.
o EAA Museum, (920) 426 4818, eaa.org.
o Oakland Aviation Museum, (510) 638 7100, oaklandaviationmuseum.org.
· Not-for-profit charity
o Mission Aviation Fellowship, (208) 498 0800, maf.org.
o Aircraft Donation, (888) 228 7320, aircraftdonation.org.
o Wings of Hope, (800) 448 9487, wingsofhope.ngo.
o Donate Airplanes USA, (800) 631 5458, donateairplanesusa.org.
o Wings for the word, (336) 287 2994, wingsfortheword.org.
o Giving Center, (888) 228 7320, givingcenter.org.
o AOPA Foundation, (800) 872 2672, foundation.aopa.org.