Leaseback experiences?

Any DA42 related topics.

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Colin
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Re: Leaseback experiences?

Post by Colin »

If I was putting a DA42 on leaseback I would also specify no air starts of an engine that was shut down. My instructor demonstrated that twice during training. I have learned that it is hard on the gearbox.
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CFIDave
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Re: Leaseback experiences?

Post by CFIDave »

FYI, around here all of the flight schools get only a 20% commission. That's actually pretty reasonable given that they typically manage all of the maintenance and database upgrades, and of course are the ones who market the plane to their students and renters.
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TimS
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Re: Leaseback experiences?

Post by TimS »

Locally they keep 12% down to a minimum rate (I do not recall what the number is).
Owner bears all costs except credit card fees for paying the rental. You also get access to the mechanics, insurance... all at discounted rates. The insurance through them was about 1/3 of what a direct quote I received.

Tim
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Re: Leaseback experiences?

Post by CFIDave »

Colin wrote:If I was putting a DA42 on leaseback I would also specify no air starts of an engine that was shut down. My instructor demonstrated that twice during training. I have learned that it is hard on the gearbox.
That's not really practical for any DA42 used for flight training; the student *HAS* to experience what it's like to fly a plane with a feathered prop and learn to re-start it in the air. They must also be prepared to do this during a checkride.

However, to Colin's point, (for Austro engined DA42/DA62 aircraft) the AFM/POH has now been changed to prohibit windmilling re-starts (except in emergencies) because it's hard on the engine timing chain. Instead, pilots are now instructed to slow the plane enough (by pitching up) to get the prop to stop moving, and then apply the electric starter.
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shorton
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Re: Leaseback experiences?

Post by shorton »

Seth274 wrote: Working through financials of the whole thing - opps to write-off a bunch it seems to offset other gains i have
If tax deductions are important to you, make sure you engage an aviation tax specialist, either a lawyer or CPA. There are a handful of experienced tax people out there who limit their practice to aviation tax matters. They are worth the fees.

Leasebacks are very tricky from a tax standpoint. Once the issues are understood some owners in the right situation are able to do what it takes to make it work. In any case, you will not survive an IRS audit intact without a solid plan from the outset that is monitored regularly over time.

There are always lots of tax issues with a leaseback, but two threshold issues that always present themselves are, 1) the hobby loss rule, and 2) passive activity loss rules.

In a nutshell, the hobby loss rule says that if you are not engaged in the airplane activity for profit, you cannot take any deductions. So, you have to convince the IRS that you have a profit-seeking business rather than just a revenue-generating hobby to reduce your cost of aircraft ownership.

Rentals of any kind are considered per se passive activities and you can't deduct any losses against active income (your job). There are some exceptions to this per se passive treatment if you meet specific tests. Additionally, even if you meet these tests and avoid the automatic application of the passive loss rules, you will have to demonstrate with adequate documentation that you actively participated in the business more than anyone else.

These arguments can be difficult to make with a straight face when you have a job or other business that you spend your full time pursuing and the flight school is getting paid 25% to handle lots of stuff for you. If you lose on these issues you lose all deductions plus penalties and interest. A big check is written to the U.S. Treasury.
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TimS
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Re: Leaseback experiences?

Post by TimS »

I second shorton's message.
I made good use of an aviation accountant, along with a tax specialist. To make it work, I actually did some planning and it took a year to set it up before I purchased the plane and put it on leaseback.

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Re: Leaseback experiences?

Post by klang »

I would think that the ATO taking a commission is not justified.
If it was a broker who finds you (charter) business, then, yes, it is standard practise that the broker earns himself a fee.
The ATO renting your aircraft is an entirely different case. The ATO does not „sell“hours on your aircraft but rents the aircraft for its own use and business ( ecessary tool for training of its customers / students).
The analogy would be a customer renting a lease car and asking the rental company to pay him a commission - weird concept, isn‘t it, or just nice try, at best
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Re: Leaseback experiences?

Post by Daneshgari »

My only experience with Lease back has been with Mooney factory and it worked fine. Private leasing of my Meridian was a bit more involved, but not so bad. You just have to make sure that they cover all the maintenance and damage issues as well as any losses due to Damage in the resell price.

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Re: Leaseback experiences?

Post by Boatguy »

I have a DA40-NG on order which will go into a local club. They take $10 + 5% on rental fee, $0 on my usage, manage the plane and charge $95/hr for 3 A&P's who do most work other than Diamond warranty or avionics. They put in less than 100hrs of active management, so I have to put in at least 100hrs to avoid the hobby rule and take expenses, depreciation, etc. I'm retired so there is no competition with a regular job and putting in 10hrs/month of time managing the business (accounting, meetings with A&P's, meetings with club management, etc.) is entirely possible.

There are 50 planes in the club and most owners report as a business.

With 300 rental hrs / yr (another DA40-NG in the club did that historically) I essentially end up paying the rental rate and have spread my fixed costs over many more hours. But the depreciation (new plane) makes it a significant loss for tax purposes so with other income to be offset it's a reasonable arrangement.

That said, the DiamondShare system setup by LifeStyle is also a good option, but you will be the plane manager taking care of maintenance and whatever issues arrive while the other "members" just fly the plane. There is no "business" in the DiamondShare model and no depreciation or tax loss benefit.

In my case the tax benefits and the fact that the club is co-located with a Diamond maintenance shop for warranty work made it a better choice. But if you're buying a new DA42, it's working looking at the DiamondShare program.

As someone else wrote, you need to work out your program with an accountant that does a lot of aviation work (tax lawyer is probably overkill).

YMMV!
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Re: Leaseback experiences?

Post by RMarkSampson »

I have not seen it mentioned but I would imagine that insurance for a retractable twin is fairly steep. My DA-20 on leaseback to a club I formed around the plane. It has been a good experience but one bull in the china shop has been the insurance policy - which is about 4X the insurance of a private owner. I would think insurance would be an even bigger bite for a high dollar retractable.

Remember leases and contracts are not only designed to identify the finances of when things go according to plan - they also set the terms when things go sour. So to relay a cautionary tale of "shysters" out there, this is not my experience but I do have a friend that put his twin aircraft into an arrangement that guaranteed hours and also took care of the a/c maintenance. Before he knew it his plane had a maintenance bill that he could not afford. Turns out the person on the other side had made a business of essentially acquiring aircraft this way. He had acquired a fleet of business jets and other aircraft by having people enter into "his business arrangement" only to find out that it was a Venus Fly Trap designed to catch aircraft - and he had lawyers ready to spring the trap for their piece of the pie. And my friend was now in a legal battle to get his plane back. Ultimately he won his case, reacquired his plane but has not seen any of the other associated $$s that he was awarded toward the cost of getting his plane back. Bottom line - look at the leaseback contract from both runway headings to ensure you have the necessary sight picture to not get sucked into my friend's quagmire...
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