When selling one business aircraft and acquiring another, a 1031 like-kind exchange can be a powerful tax-deferral strategy. Named after Section 1031 of the U.S. Internal Revenue Code, this provision allows an owner to defer capital gains taxes that would normally be due on the sale of an asset.
How Does a 1031 Exchange Work for Aircraft?
In a 1031 exchange, you are not "selling" your old aircraft but rather "exchanging" it for a new one. To do this, the proceeds from the sale of your old aircraft (the "relinquished property") are sent directly to a Qualified Intermediary (QI), not to you. You then use those funds to purchase the new aircraft (the "replacement property").
Strict Timelines and Rules
The IRS imposes very strict rules:
- 45-Day Identification Period: From the day you sell your old aircraft, you have just 45 days to formally identify a replacement aircraft.
- 180-Day Closing Period: You must close on the purchase of the replacement aircraft within 180 days of the sale of your old one.
- Qualified Intermediary (QI): You must use a QI to hold the funds. Taking constructive receipt of the cash from the sale will void the exchange.
Complex Transactions, Simplified
We are experienced in working with clients and their Qualified Intermediaries to coordinate financing within the tight deadlines of a 1031 exchange.
Discuss Your 1031 ExchangeCombining a 1031 Exchange with Financing
It is very common to combine a 1031 exchange with financing, especially when upgrading to a more expensive aircraft. The funds held by the QI act as your down payment, and we secure a loan for the remaining balance. This requires careful coordination between you, your tax advisor, the QI, and our lending partners to ensure all deadlines are met.
Disclaimer: This article is for informational purposes only. Jaken Aviation does not provide tax advice. You must consult with a Qualified Intermediary and a tax professional to execute a 1031 exchange.