Lease back C-172 to Flight School advise needed

[Dash Power]

I am considering leasing back a C-172 to a local flight school.

Any advise anyone would have would be greatly appreciated.

Thank you.

 

[Be 23]

AOPA has some good advice on their website, including (I think) a sample agreement. Key items include abnormal wear and tear, since renters won't be as gentle with it as you are. Also, consider the tax implications of engaging in a "rental activity" if a tax break is any concern.

The advice I got from a lawyer is to incorporate the airplane as a legal entity. When it crashes its possible to sue everyone who ever owned the machine for negligence in maintaining it. They'd try to sue a corporation that has no assets. It's somehow a big jump to sue the owners of a corporation -- not that it can't be done. When the Sundowner I previously owned was crashed at a flight school I had no worries. Google N9194S 1/22/09 for details.

 

[75 Driver]

Be carefull

I have been leasing airplanes for years. Form a LLC at a min, make it a requirement that all renters carry renters insurance. You will need to min your hull insurance to make the hourly rate affordable. Be ready to perform some mx such as tires/brakes/oil changes. Be prepared to find some of your own parts (tires/oil/brakes/light bulbs). If the place you are leasing to will not work with you on these issues, do not enter into the game with them. Make sure you can watch over the aircraft, do not believe that any flight school will actually take care of your aircraft.

I had to execute the bail out plan recently on a couple of Skippers that were on lease to a flight school that promised the world and delivered on nothing. Have an exit strategy. If the flight school you are considering leasing to are your friends do not enter into this arrangement, it is the easiest way to lose money and friends. This is business and you will need to approach it as such. Learn how to depreciate the asset and write off all cost no matter how remote. Your drive to the airport to check on the aircraft is a business expense.. etc..

Just my .02

 

[DieselDragRacer]

The advice I got from a lawyer is to incorporate the airplane as a legal entity. When it crashes its possible to sue everyone who ever owned the machine for negligence in maintaining it. They'd try to sue a corporation that has no assets. It's somehow a big jump to sue the owners of a corporation -- not that it can't be done. When the Sundowner I previously owned was crashed at a flight school I had no worries. Google N9194S 1/22/09 for details.

While it varies some by state 'piercing the corporate veil' and coming after your ass personally ($$$$$$) because its really your plane that might have had a lack of MX that might have led to a crash is pretty simple from a legal standpoint. If LLC's and Inc's actually protected your personal assets from mistakes you made while doing business they wouldn't cost ~$75 and be available to every Tom, Dick and Harry.

An good estate planning attorney in your state can really enlighten you on this topic.

Trust me. My family has been through serious estate planning.

 

[DUATS]

Don't expect to make a profit. If you are going to own a 172 anyway and see this as a way to reduce your overall annual cost, it's a good plan. If you think you will actually be putting cash in your pocket at the end of the month, well, you aren't going to be happy.

 

[Dash Power]

AOPA has some good advice on their website, including (I think) a sample agreement. Key items include abnormal wear and tear, since renters won't be as gentle with it as you are. Also, consider the tax implications of engaging in a "rental activity" if a tax break is any concern.

The advice I got from a lawyer is to incorporate the airplane as a legal entity. When it crashes its possible to sue everyone who ever owned the machine for negligence in maintaining it. They'd try to sue a corporation that has no assets. It's somehow a big jump to sue the owners of a corporation -- not that it can't be done. When the Sundowner I previously owned was crashed at a flight school I had no worries. Google N9194S 1/22/09 for details.

Thanks for all the great advice from everyone!

When you incorporated the aircraft did you use an S or C corporation?

Thanks.

 

[Be 23]

I used an S corp. If you actually make a profit it gets taxed once as personal income (sort of). Likewise, if you take a loss it's just negative income, not a tax deduction. In a C Corp the corporation pays taxes and the owners pay additional taxes on any income given to them as dividends. So for an S Corp you do the corporate tax return, mail in the forms and enter the numbers on the income section of your 1040. For the C Corp you do the corporate tax return, send in the forms with a check to Uncle Sam, enter the numbers on your 1040 and pay taxes again.

To do it all again I would seriously consider a LLC. Depending on the state, it's probably less paperwork hassle and cost to establish the corporate entity. Also, the taxes are easier to figure out and file. I think you can do the taxes on a schedule C like a sole owner proprietorship--someone will correct me if I'm wrong.

 

[DUATS]

I used an S corp. If you actually make a profit it gets taxed once as personal income (sort of). Likewise, if you take a loss it's just negative income, not a tax deduction. In a C Corp the corporation pays taxes and the owners pay additional taxes on any income given to them as dividends. So for an S Corp you do the corporate tax return, mail in the forms and enter the numbers on the income section of your 1040. For the C Corp you do the corporate tax return, send in the forms with a check to Uncle Sam, enter the numbers on your 1040 and pay taxes again.

To do it all again I would seriously consider a LLC. Depending on the state, it's probably less paperwork hassle and cost to establish the corporate entity. Also, the taxes are easier to figure out and file. I think you can do the taxes on a schedule C like a sole owner proprietorship--someone will correct me if I'm wrong.

You aare correct. A single member LLC is an "ignored entity" for IRS purposes. You transfer the numbers to a Schedule C and are done. The only issue with doing this with a leaseback is the potential limitations on passive activities; you can't take a big loss if the IRS says you don't materially participate in running the business.