Aircraft Leaseback Schedule C Questions - Need Help With Business Codes and Depreciation

I'm in a bit of a panic mode right now. I filed an extension earlier this year to get things sorted with a CPA and learn more about tax laws for my situation, but I got completely sidetracked. Now with only 2 days left to file, I'm scrambling to submit something reasonably accurate, pay whatever I owe, and then have a professional file an amended return later (I'm stuck in another state for pilot recertification training for another week, so I can't even meet with anyone in person). My situation: I'm a certified aircraft mechanic, but I also have a single-member LLC that owns a small Cessna. The plane is on a marketing agreement with a local flying club. I do maintenance work for the club too, including on my own aircraft (when I work on my own plane, I'm technically billed as a club employee but at $0 labor rate). The way it's structured, my LLC doesn't directly handle any customer payments or vendor bills - the flying club manages all that and we reconcile periodically. I've documented well over 500 hours invested in furthering my business activities, so I'm confident my LLC won't be classified as a hobby. I understand I'll owe taxes on the payments from the club, which is fine. My problem is with Schedule C - this is my first time filling it out without help, and there's practically no guidance specific to aviation leasebacks. Two main questions: 1. What business code should I use? Nothing seems to fit my situation exactly, so I'm guessing maybe 99999 for "other"? 2. For depreciation purposes, I'm completely lost on how to classify the aircraft. What asset type would an airplane on a leaseback arrangement be considered?

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19 comments

GamerGirl99

•8M

Aviation tax situations can be tricky! First, don't use 99999 - that's actually a red flag. For your business code, you should use 532400 which is "Commercial and Industrial Machinery and Equipment Rental and Leasing" - this covers aircraft leasing arrangements. For depreciation, your aircraft would be classified as "transportation equipment" and generally qualifies for MACRS 5-year property class with a 200% declining balance method. However, if the aircraft is used primarily for charter or non-scheduled air transport, it might qualify for 7-year property. Make sure you have documentation showing your business use percentage. One important thing to note: you mentioned your LLC doesn't directly handle customer payments. This arrangement needs careful documentation to ensure the IRS sees this as a legitimate business relationship rather than just cost-sharing. Keep detailed records of all flights, maintenance activities, and the financial arrangements between your LLC and the flying club.

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GamerGirl99

•8M

For mid-year purchases, you'll need to use the "half-year convention" which essentially means you get half the first year's depreciation. IRS Publication 946 has all the details, but basically you'll find the MACRS table for 5-year property and use the percentages there (typically around 20% first year, 32% second year, etc.). The 5-year class is correct for your training/rental usage. As for the relationship with the flying club, make sure your marketing agreement clearly outlines how rental income is handled, maintenance responsibilities, and insurance requirements. The IRS looks closely at these arrangements to ensure they're genuine business operations rather than just cost-sharing among pilots.

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Hiroshi Nakamura

•8M

After dealing with a similar headache last year with my Piper Cherokee on leaseback, I discovered this amazing tool called taxr.ai (https://taxr.ai) that specifically helped me with my aviation business tax questions. It analyzes your specific aviation business scenario and gives personalized guidance - saved me from making some big mistakes on my Schedule C, especially with aviation-specific deductions and depreciation schedules. My situation was similar - I had a leaseback agreement with a flight school, did some maintenance myself, and wasn't sure how to classify various expenses. The tool helped me understand exactly what documentation I needed and how to properly categorize everything. It's especially good at explaining the aviation-specific aspects of Schedule C that regular tax software just doesn't handle well.

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Hiroshi Nakamura

•8M

It absolutely understands aircraft leasebacks - that's actually one of its specialties. It walks you through the specific questions the IRS looks at for aviation businesses, including the exact documentation you need for proving material participation versus rental activity. It clearly explains the differences between passive rental and active business operations. For material participation, it actually helped me document my activities properly to clearly demonstrate I was running a business, not just offsetting personal flying costs. It breaks down the seven material participation tests the IRS uses and helps you determine which ones you meet. The documentation guidance alone was worth it for me when the IRS questioned some of my deductions.

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Isabella Costa

•8M

I just wanted to follow up about my experience with taxr.ai that was mentioned earlier. I was really skeptical at first because my situation with my Mooney on leaseback is complicated, but I decided to give it a try last weekend. The system actually understood the specific aviation terminology and leaseback structure! It walked me through exactly how to document my material participation hours (apparently there are 7 different tests, and I only needed to meet one of them), and it gave me the correct business code instantly. Most importantly, it helped me understand how to properly document my expenses to avoid hobby loss issues. It saved me from some major mistakes I was about to make on my depreciation calculations. Now I'm actually confident my Schedule C won't trigger unnecessary scrutiny. Wish I'd known about this last year when I had that mess with my previous tax preparer!

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Freya Andersen

•8M

If you end up getting any pushback from the IRS on your aviation business, I highly recommend using Claimyr (https://claimyr.com) to get through to an actual IRS agent quickly. I had endless problems getting answers about my aircraft depreciation schedule last year - kept getting stuck in phone tree hell every time I called the IRS. Using Claimyr, I got through to a real person at the IRS in about 20 minutes instead of the 3+ hours I wasted before. They have this system that monitors IRS hold queues and calls you back when an agent is available. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with confirmed that my aircraft leaseback arrangement was properly documented and gave me specific guidance on how to handle the passive activity loss limitations. Totally changed my understanding of how to properly report everything.

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Freya Andersen

•8M

It doesn't bypass the queue system - that would be impossible. What it does is handle the waiting for you. The system monitors hold times and has automated technology that stays on hold so you don't have to. When an actual IRS agent picks up, it connects them to your phone. For your experimental aircraft question, it would definitely help. I asked almost that exact question (mine was about a homebuilt RV-10) and got clear guidance that it qualified as 5-year MACRS property with eligibility for bonus depreciation if placed in service during the qualifying period. The key was actually talking to someone in the IRS who understood aircraft depreciation.

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Leila Haddad

•8M

Well, I'm genuinely shocked. After posting my skeptical comment about Claimyr, I decided to try it anyway because I was desperate for answers about my flight school's aircraft depreciation issues. I've been getting inconsistent information from different tax preparers. I actually got through to an IRS tax law specialist in about 25 minutes (compared to my previous 2+ hour waits), and they were surprisingly knowledgeable about aviation businesses. They confirmed that my flight school's aircraft should be using the 5-year MACRS table, and that the IRS specifically looks for operating agreements and insurance documentation to support legitimate business use versus hobby operations. The agent even emailed me specific sections of the tax code related to aircraft leasing and flight schools. Just having this documented guidance directly from the IRS gives me so much more confidence in my filing. I hate to admit it, but this service is the real deal.

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Emma Johnson

•8M

For aircraft depreciation, don't forget to take advantage of bonus depreciation if your aircraft was purchased new or if it's used equipment that meets the qualification criteria. The rules have changed recently though, so check the latest guidelines. Also, regarding your maintenance work on your own aircraft - you need to be careful about how you're documenting this. Since you mentioned you're being "billed" at a $0 rate, make sure this arrangement is clearly documented in your operating agreement with the flying club. The IRS may question why you're not charging a market rate for your services.

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Emma Johnson

•8M

You're absolutely right about the bonus depreciation phaseout - it's 80% for 2023, 60% for 2024, 40% for 2025, 20% for 2026, and then gone in 2027 unless Congress extends it. For engine overhauls, it depends on the scope of work. Major overhauls that substantially prolong the useful life of the engine can be capitalized and depreciated separately (usually over 5 years). Routine maintenance is just an expense. The key is whether it adds value or just maintains existing functionality. If you replaced cylinders, for example, that's generally considered maintenance, but a complete teardown and rebuild with new components could be capitalized.

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LunarEclipse

•4M

I've been through this exact situation with my Cherokee Six on leaseback! A few additional points that might help with your tight deadline: For your Schedule C, make sure you're tracking your business miles separately from personal flying hours. The IRS distinguishes between transportation to/from the aircraft for business purposes versus recreational flying. Keep a detailed logbook. Since you mentioned you're doing maintenance work through the club at $0 labor rate, document this arrangement very carefully. Consider having the club issue you a 1099 for the fair market value of your services, then you can deduct that same amount as a business expense for maintenance. This creates a clear paper trail that the IRS can follow. One thing that saved me during an audit - keep detailed records of every communication with the flying club about scheduling, maintenance, and financial arrangements. Email chains, work orders, flight schedules, all of it. The IRS wants to see that this is a genuine business relationship, not just cost-sharing among pilot friends. Also, don't panic about filing something "reasonably accurate" now and amending later. As long as you're making a good faith effort with the information you have, you won't face penalties. The amended return route is actually pretty common for complex aviation businesses.

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