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Why might the IRS treat my aircraft business as a passive activity?



When the IRS takes a look at our income and our expenses, they divide those income and expenses into several categories, that is, active income and expenses, passive or investment income and expenses. The IRS may be inclined to treat the aircraft expenses, even if they’re incurred in your active income-producing business, as passive because of the common nature of aircraft leasing. That is, aircraft are commonly operated under a lease agreement, and the IRS has specific rules that call rental activity ‘passive’ activity. This is why it’s really important that, in order to take deductions and active deductions for your aircraft, that you file any appropriate grouping elections and that you demonstrate to the IRS that the period of the rental is less than seven days or that the rental occurs entirely within a single tax payer and should not be treated as passive under Section 469.

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