Calculation of hourly operational costs

[mchutto]

Having only flown for pleasure or training, I've never had to calculate the cost per hour of operating the airplane. There are fixed costs that occur no matter how many hours you fly, e. g. hangar rent, insurance, annuals, etc. There is your maintenance reserve for engine oeverhaul which is a per hour amount. Finally there are true operational costs of fuel and oil. What costs do you use to arrive at the number to put on the flight form? Thanks! Marty Hutto

[Jon]

Marty, I did not stay at a Holiday Inn Express last night so discuss this with your accountant. Here is my opinion which is not worth much.

If you keep sufficiently detailed records, such as fixed expenses (hangar, insurance, GPS updates, annual inspection, charts and approaches, and IFR certification) and variable expenses such as fuel purchases and maintenance and repairs it appears to me, a layman, that at the very least you can claim your cost of fuel and pro rata cost of maintenance which include oil changes, engine replacement set asides, and possibly maintenence costs on a per hour basis. Your accountant can determine if you are entitled or eligible to recover all costs on a per hour basis, expressed as a percentage of your total costs your charitable flying represents.

When I used my plane for business, the percentage of personal time we used our plane was less than 5%, so I claimed expenses of 95% of the total costs associated with the operation of the plane.

[Steve Foley]

If you're looking for costs for a charitable deduction, the IRS only allows out of pocket expenses. For automobile expenses, they have a different per mile rate for charitable deductions, that is intended to exclude depreciation, repairs and maintenance.

If you own the plane, about all you could deduct would be gas and oil, landing/parking fees.

If you are talking about real costs, it's your take-home pay, minus what your wife takes away, divided by hours flown.

[Terry in Huntsville]

Hi,
Realizing that IRS would be the final authority (no pun intended on the "final"), has anyone had any experience deducting costs of rental aircraft for charitable flights?
Thanks,
Terry

[Steve Foley]

Hi,
Realizing that IRS would be the final authority (no pun intended on the "final"), has anyone had any experience deducting costs of rental aircraft for charitable flights?
Thanks,
Terry

IRS Publication 526 explains (in great detail) what is and is not deductable. Unfortunately, it does not specifically mention aircraft rental, or automobile rental for that matter.

http://www.irs.gov/publications/p526/index.html

It does say:

Out-of-Pocket Expenses in Giving Services

Although you cannot deduct the value of your services given to a qualified organization, you may be able to deduct some amounts you pay in giving services to a qualified organization. The amounts must be:

* Unreimbursed,
* Directly connected with the services,
* Expenses you had only because of the services you gave, and
* Not personal, living, or family expenses.

[wayne]

The FAA and IRS have similar rules on this. You can't charge/deduct the fixed portion. If you fly with friends their "share" of the flight can not include the fixed costs. If you donate a flight you can't deduct the fixed costs of your plane.

This is one area where renting has a benefit. Since the whole cost is paid explicitly for that flight it can be shared or deducted.

Now, if the plane is owned by another entity (LLC, etc), often for co-ownership/partner reasons, and you pay an hourly rate for the plane then that is shareable/deductable too. This could be where you own the plane with "partners" and charge a dry rate for rebuild fund, maintenance fund, etc. Since that cost is directly attributable to the trip then it can be shared or deducted.

I'm not an attorney nor a tax accountant. And this advice is worth what you paid for it. Check with your tax accountant. They should know or be able to determine the current rules.

[Steve Foley]

This is one area where renting has a benefit. Since the whole cost is paid explicitly for that flight it can be shared or deducted.

Someone brought up the question asking if it is justifiable to incur the cost of an aircraft rental to transport a dog, comparing it to hiring a Hummer limo.

I don't know the answer, and since I don't rent, I could only deduct gas and oil, which is certainly less than using a paid ground transport.

[Jon]

I'm not sure there is a standard answer. I think each pilot needs to resolve this with their accountants because there are so many variations on the circumstances.

Certainly the cost a rental specifically for the purpose of a transport would seem reasonable as a donation. But so would a direct out of pocket cost for gas and oil and landing fees. But what about an owner who uses the plane exclusively for transports. Certainly he would be as entitled to deduct every expense relating to the operation of the plane since that is no different than deducting the rental cost which includes those costs. Is there a standard such as the uniform deduction per mile for the use of a personal car? What does the IRS consider reasonable? This year I paid as little as $3.00 per gallon and as high as $8.00 per gallon, mostly due to individual FBO pricing, not the cost per barrel of oil. Does the IRS recognize we have no choice when there is one FBO on the airport? That would make my reporting of costs vary from transport to transport by a factor of more than 200%.

If the total cost of a rental is tax deductible, can I rent a TBM850 to haul a single Yorkie 500 miles and deduct the cost? Certainly the flight could be done in a rental 150 for a lot less, but who determines what is acceptable?

Does a pilot who does a transport, but with an instructor on board for a checkout or currency requirements get to deduct any of the costs for a transport? What if a pilot gets weathered in and needs to spend an unplanned night in a hotel. Are those costs deductible? They are certainly related to the transport.

I suspect, but do not know for sure that each pilot's situation will be unique and each situation must be individually evaluated. Are there any tax experts or CPA's on this site that can shed some light on how the various scenarios can be treated? What record keeping is acceptable?

[Steve Foley]

But what about an owner who uses the plane exclusively for transports. Certainly he would be as entitled to deduct every expense relating to the operation of the plane since that is no different than deducting the rental cost which includes those costs.

I don't think that would hold water. What if it turns out that the ONLY flying I do this year is for one dog transport? Can I now deduct my annual, tie down and insurance?

Is there a standard such as the uniform deduction per mile for the use of a personal car?

Yes - but it's only $0.14/mile.

What does the IRS consider reasonable?

"IRS" and "reasonable" in the same sentence?

That's like asking what does the FAA consider reckless.

In short, my guess is that it all depends on the auditor.

[Jon]

Steve you are making my point about reasonableness.

If you only fly one pup and use the plane for nothing else are your total annual costs of ownership deductible? A reasonable answer might be "no". But what if you flew 200 hours of transports, and nothing else. In fact what if the only reason for the plane is to do rescue flights? Would that be any different than donating the cost of 200 hours of rental time to the local shelter that moves animals every week of the year?

I just don't believe we should make assumptions here because someone can get misinformed. I would just urge everyone to review their own particular circumstances with their own tax preparers or accountants.