For a Section 1031 Exchange to qualify under IRS regulations, both the Relinquished Aircraft and the Replacement Aircraft must be categorized as 'like-kind.'

As with all tangible personal property, the like-kind requirement can be met if the aircraft are of like-class.  Personal property assets are of like class if they are within the same General Asset Class described in asset classes 00.11 through 00.28 and 00.4 of IRS Revenue Procedure 87-56 as supplemented, or if they are of the same Product Class as set forth in the six-digit product classes within Sectors 31, 32 and 33 of the North American Industry Classification System (NAICS).  

According to the rules applicable to aircraft, the following are classified as like-class:
 

-All airplanes (airframes and engines), except those used in commercial or contract carrying of passengers or freight, and all helicopters are treated as like-kind.  This classification is derived from the IRS General Asset Class 00.21.

 

-Assets other than helicopters that are used in commercial and contract carrying of passengers and freight by air are similarly treated as like-kind.  This includes commercial and charter aircraft (passengers and cargo) used in scheduled air transportation. 
 

The failure to meet the like class requirement does not foreclose the possibility of qualifying the exchange since it is possible that the generic like-kind requirement for aircraft can still be met.  The Regulations also state that no inference is to be drawn from the fact that personal property is not of like-class in determining if personal property is like-kind.

In addition to the ‘like-class’ requirement, personal property used predominantly within the US is not considered like-kind with personal property used predominantly outside the US.  If your aircraft exchange may be affected by these rules, please contact us.


Summary

The principals of Beacon Exchange Company have significant experience in all facets of Section 1031 exchanges, as well as in purchasing, selling and financing commercial aircraft.  We are also experienced in aircraft sales and use tax matters, which can bring additional complexity to an aircraft acquisition. 

We invite you to contact us if you are contemplating the purchase and sale of an aircraft.  We look forward to hearing from you.