If you’re considering selling an airpark lot, hangar home, or private airport/runway property, a 1031 exchange for aviation properties may be one of the smartest financial moves you can make.
Whether you’re upgrading your aircraft hangar, transitioning from residential airpark living to a commercial aviation facility, or diversifying your portfolio, a 1031 exchange allows you to defer capital gains taxes and reinvest your equity into another qualifying property.
What is a 1031 Exchange?
A 1031 exchange, named after Section 1031 of the Internal Revenue Code, enables property owners to defer paying capital gains taxes when they sell an investment or business property—provided they reinvest the proceeds into another “like-kind” property of equal or greater value.
For the exchange to qualify, both the relinquished (sold) property and the replacement property must be held for business or investment purposes, not personal use, and they must be located within the United States. Properties are considered “like-kind” if they are of the same nature or character, even if they differ in quality or grade—for example, exchanging a commercial hangar for an airpark lot would typically qualify, as both are investment real estate.
Important requirements include:
- The property cannot be held primarily for sale (e.g., inventory for developers).
- Since the Tax Cuts and Jobs Act of 2017, 1031 exchanges are limited to real property; personal property like aircraft or equipment no longer qualifies.
- If you receive cash, debt relief, or non-like-kind property (known as “boot”) in the exchange, you’ll owe taxes on that portion.
For aviation real estate investors, this can apply to:
- Hangar homes (That are not a primary residence)
- Airpark lots
- Private airports
- Commercial hangars
- Aviation commercial facilities
The 1031 Exchange Process
To execute a successful 1031 exchange, follow these key steps:
- Consult Professionals: Work with a qualified intermediary (QI), tax advisor, and real estate experts early to ensure compliance.
- Sell the Relinquished Property: Use a QI to hold the sale proceeds, as you cannot directly receive the funds.
- Identify Replacement Properties: Within 45 days of closing the sale, identify up to three potential replacement properties, or more under certain rules, in writing to the QI.
- Acquire the Replacement Property: Complete the purchase within 180 days of the original sale.
- Report to the IRS: File Form 8824 with your tax return to document the exchange, including property details, dates, and values.
Common types of exchanges include:
- Delayed (Starker) Exchange: Sell first, then buy—the most common for aviation investors.
- Reverse Exchange: Buy the replacement property first, then sell the old one, useful if you find a great hangar opportunity before selling your current airpark lot.
Pitfalls to avoid: Missing deadlines can disqualify the exchange, and improper handling of loans or boot can trigger taxes. Always ensure the replacement property is of equal or greater value to fully defer gains.
Benefits of a 1031 Exchange for Aviation Properties
Defer Taxes
Keep more of your equity working for you instead of paying it out in capital gains.
Grow Your Portfolio
Reinvest into larger or more valuable aviation real estate properties or other investment properties, potentially compounding your returns over time.
Upgrade with Flexibility
Move from one type of aviation property to another while preserving tax advantages, such as trading a small hangar for a commercial aviation facility.
Estate Planning Benefits
Preserve wealth for future generations through strategic real estate planning—upon inheritance, heirs receive a stepped-up basis, potentially eliminating deferred taxes altogether.
Leverage Depreciation
Continue depreciating the replacement property based on the adjusted basis from the original, enhancing long-term tax savings.
AV8 Realty + Deferred
At AV8 Realty, our mission is to make aviation real estate transactions as seamless as possible. That’s why we’ve partnered with Deferred, a trusted Qualified Intermediary (QI) specializing in 1031 exchanges. With Deferred’s expertise and innovative approach, you’ll have the support and compliance guidance you need to structure a successful exchange.
About Deferred
Deferred makes 1031 exchanges simple, secure, and cost-effective:
- No Fees – Deferred is the No Fee way to 1031 Exchange. Their experienced team leverages software and automation to operate more efficiently, passing those savings directly to you.
- Earn Interest – Unlike other Qualified Intermediaries, Deferred sets up a dedicated, interest-bearing account and shares the earnings with you.
- Trusted Experience – With years of industry knowledge, they provide a seamless process designed to help you earn more, not pay more.
When it comes to protecting your investment and maximizing returns, choosing Deferred means keeping more of your money working for you.