Donating your aircraft
Many business jets have recently been depreciating faster than ever before. Some models whose value historically declined an average of 4 percent per year experienced losses in excess of 20 percent in 2015. Aircraft Value Reference Guide (Vref), for example, reported that during a three-month period toward the end of last year, the value of the average Falcon 7X sank between $1.8 and $2.7 million, with other models such as the Gulfstream G550 experiencing similar declines. Sellers of such jets face pressure to complete a transaction sooner rather than later, which further accelerates depreciation rates.
No matter how old they are, though, jets never seem to run out of value altogether. Instead, they often hit a floor, a kind of depreciation-free zone, where loss in value slows or stops for a time. Vref, for example, reports that in the same three-month period, Gulfstream GIIs, Dassault Falcon 10s, Citation Bravos, and Learjet 55s did not decline in value at all.
In part, this apparent stabilization may simply reflect a lack of sales. Buyers aren’t plentiful for a 32-year-old business jet that needs an eight-year inspection, major avionics upgrades, and engine overhauls. A potential purchaser might conclude that the cost to render the aircraft serviceable exceeds its ostensible value. The owner who wants to get rid of an airplane that’s hard to sell, then, has limited options. A business jet, after all, isn’t like a car that you can push out to rust in a field by the barn or have hauled away by a junk-metal dealer’s tow truck.
When an aircraft becomes too expensive to operate or too difficult to sell, a typical solution is to “part it out”—to tear it down for parts. This is a flourishing industry served by a trade organization called the Aircraft Fleet Recycling Association, which offers accreditations in airplane disassembly and recycling. But depending on the model, the market for its parts may already be saturated. As a result, owners seeking to get rid of older jets are increasingly thinking about giving them to a charity.
There’s no lack of willing recipients. Institutions like the nascent Massachusetts Air and Space Museum and the established EAA AirVenture Museum accept donated aircraft, either for display or to resell for revenue. Other aviation-related organizations, such as the AOPA Foundation, also seek such donations, as do donateairplaneusa.org, wingsfortheword.org, and aircraftdonation.org.
Some of these charities may employ the aircraft for their mission—delivering food, clothing, and medical supplies to hard-to-reach third-world locations, for example—or may transfer it to a broker or parts dealer for cash. As you might expect, if the donee organization is looking for aircraft it can put into service or display in a museum, its interest in your donation will largely depend on what exactly you have to offer. A museum may be delighted with your B-17 Flying Fortress; a medical lift organization, not so much.
Obviously, a key concern in donating an aircraft is to make sure you’re dealing with a bona fide charity whose mission you agree with. Ask what the organization will do with the aircraft or the proceeds of sale. Ask, too, for its taxpayer ID number, which will enable you to check whether you can deduct contributions to the group for tax purposes. (To do so, visit irs.gov/charities-&-non-profits/exempt-organizations-select-check.)
You should also discuss with the charity how the transfer of possession of the aircraft will be effected. Many organizations will send pilots (or a truck, if necessary) to pick it up, often on short notice. A timely pickup can be important if you’re tired of paying the holding costs of a jet.
Even if the charity meets IRS criteria for tax-deductible contributions, it doesn’t necessarily follow that the donation will result in tax benefits to you. Aviation tax attorney John Hoover notes that aircraft owners sometimes have unrealistic expectations in this regard. “Many owners think you can deduct the fair market value of the aircraft,” he says, “forgetting that they already depreciated it to zero for tax purposes.” Not surprisingly, the IRS doesn’t let you deduct the same thing twice.
Furthermore, says Hoover, if the charity sells the aircraft, “the deduction is limited to the donee organization’s sale price, so it might be wise to get an idea about the expected sale price before making the donation.”
As with all charitable contributions, there are limits on what you can deduct in a given year. That amount is also capped by the aircraft’s fair market value, which must be supported by a qualified appraiser, who is required to sign a form submitted to the IRS. Note that in the unlikely event the appraisal shows that the aircraft actually appreciated in value since you acquired it, your deduction might not be limited to its adjusted basis.
On the other hand, if the charity sells the aircraft for less than the appraised value, the sale price is generally the maximum amount that you can deduct. Thus, suppose you donate an aircraft with an appraised value of $100,000 to a charity that immediately resells it for $50,000. If your adjusted basis in the airplane is at least $50,000, you can deduct the full sale price; if it’s less than $50,000, your deduction is limited by the adjusted basis.
IRS rules regarding deductions of property are complicated. “It’s important to get the paperwork right,” says Hoover. “Courts have consistently held that the deduction will be lost if your paperwork does not comply with the requirements of IRS forms and regulations.” (For more information, see IRS Publication 4303, A Donor’s Guide to Vehicle Donation.)
A final word. To protect yourself from liability, you should treat the donation the same way you would a sale of the aircraft. The transfer paperwork should contain the usual exculpatory clauses and clarify that you are making no representation or warranty regarding the aircraft or its condition and that the donor organization is accepting it on an “as is” basis. Ideally, the charity should agree to indemnify you for any losses or damages sustained by anyone in connection with the aircraft after you donate it. Keep in mind, though, that such an indemnity is only as good as the charity’s financial position and insurance.