The short answer
A hangar can be exchanged when you hold it for rent or use it in a business, but on most public airports you own the building on a ground lease from the airport, not the land, so what you sell is a leasehold. A leasehold is like-kind to a fee building or a DST interest only if 30 or more years remain on the day you transfer it, counting renewal options you hold. A hangar that stores your own personal airplane is not business or investment property and does not qualify at all.
At a glance
| What you usually own | The hangar on an airport ground lease; FAA notes structures typically revert to the airport when the lease ends |
|---|---|
| Like-kind test for a leasehold | 30 or more years left to run on the transfer date, renewal options included |
| FAA lease-term guidance | Ground leases of 30 to 35 years usually retire financing; FAA offices should not consent to terms over 50 years |
| Personal-use hangar | Not held for business or investment, so it cannot be exchanged |
| Depreciation | A hangar rented to others is 39-year nonresidential real property, even on a shorter lease |
| Non-aviation storage | Allowed only if it does not interfere with aircraft; FAA policy effective July 1, 2017 |
| Interim non-aviation leases | Must be recoverable on 30 days' notice and charged fair market rent |
Most hangars sit on an airport ground lease, so you are selling a leasehold and the building on it
The FAA's 2016 policy on hangar use puts it plainly: most hangar owners do not have fee ownership of the property, and airport structures typically revert to the airport sponsor when the lease term expires. What you hold is a ground lease from the city, county or authority that runs the airport, plus the hangar you or a prior owner built on it.
Both pieces are real property for the exchange. Reg. section 1.1031(a)-3 lists a leasehold among the intangible interests that count as real property, and a building that encloses space for working, parking or storage is an inherently permanent structure; walls, doors, wiring and fire-suppression systems are listed structural components. Tugs, fuel carts, compressors and shop tools are personal property and are sold outside the exchange.
Because the land belongs to the airport, the price a buyer pays is for the building and the years left on the lease.
Thirty years left on the day you close, counting renewal options, decides whether the hangar is like-kind to a building or a DST
Reg. section 1.1031(a)-1(c) gives as an example of a like-kind exchange a taxpayer who exchanges a leasehold of a fee with 30 years or more to run for real estate, and IRS Publication 544 repeats the rule. In Peabody Natural Resources Co. v. Commissioner, 126 T.C. 261 (2006), the Tax Court cited Rev. Rul. 78-72 as allowing optional renewal periods to be added when testing whether a leasehold runs 30 years or more.
Airport leases are written close to that line. FAA Order 5190.6B, the airport compliance manual, says most tenant ground leases of 30 to 35 years are enough to retire a tenant's initial financing and that FAA offices should not consent to terms over 50 years, because a longer lease may amount to a disposal of airport land. A hangar built on a 35-year lease has fallen below 30 years by its sixth year unless the lease carries options.
Hypothetical: a hangar on a lease signed in 2006 for 35 years has 15 years left in 2026. With two tenant options of 10 years each it counts as 35 years and qualifies; without them the hangar is still real property, but it is not like-kind to a fee building, so the gain is taxed. Ask the airport about an extension or new options before you sign a sale contract, and run your own numbers with your CPA. The leasehold interest page covers the case law on short terms.
A hangar that houses your own airplane is personal use, not business or investment property
Section 1031(a)(1) applies only to real property held for productive use in a trade or business or for investment. A hangar you rent to other aircraft owners, lease to a flight school or charter operator, or use for an aircraft that is itself used in your business meets that test. A hangar that stores the airplane you fly for pleasure does not.
Mixed use is common: an owner keeps a personal airplane in one bay and rents the other. The rented portion can be exchanged and the personal portion is a taxable sale, so the price has to be split on a reasonable basis such as floor area, and the records of rent received are what support the investment side.
The FAA's definition of aeronautical use is a different test. The 2016 policy counts building an amateur-built aircraft as aeronautical use, but that settles whether the airport is meeting its grant obligations, not whether the IRS treats the hangar as investment property.
Airport rules decide who can buy your hangar and how it can be used
Order 5190.6B tells airport staff to check whether the sponsor kept the right to approve an assignment of the lease in advance, and most airport leases require that consent. Build the airport's approval period into the contract timeline, because your 45-day identification period starts when the hangar transfers, not when the airport signs off.
Use restrictions follow the hangar. Under the FAA policy, effective July 1, 2017, non-aviation items may be stored only if they do not interfere with moving aircraft in and out or with access to other aeronautical contents, and any interim non-aviation lease of a vacant hangar must be recoverable on 30 days' notice at fair market rent. The order also asks whether title to tenant facilities vests in the sponsor at expiration and whether extensions add facility rent once it does.
The buyer pool is narrow: aircraft owners, flight-based businesses and, on some fields, the airport itself, and every year that passes moves the hangar closer to the date it becomes the airport's.
What the sale defers and where the proceeds can go
A hangar rented to others is depreciated as 39-year nonresidential real property, and section 168(i)(8) applies the normal recovery rules to a building erected on leased land rather than the lease term. On a cash sale the straight-line depreciation comes back as unrecaptured section 1250 gain taxed at up to 25%, the rest is capital gain, and the 3.8% net investment income tax may apply.
Hypothetical: a hangar built in 2006 for $700,000 has about $350,000 of depreciation and sells in 2026 for $900,000, a gain of $550,000, of which $350,000 is unrecaptured section 1250 gain. If the lease still has 30 years to run with options, the full gain can be deferred by reinvesting the $900,000 and replacing any debt; run your own numbers with your CPA.
Owners leaving aviation often want property without a reversion date. A fee-simple net-leased building, a traditional DST interest or a direct title security held through your own single-member LLC all replace a wasting leasehold with land you own.
Buying a hangar as replacement property: read the ground lease before you look at the building
If you sell fee real estate and buy a hangar on airport land, the lease you are buying has to have 30 or more years to run, options included, on the day you acquire it, or it is not like-kind to what you sold. Get the lease, every amendment and the airport's consent form before day 45, and check whether the options are the tenant's to exercise or need the sponsor's approval.
Then underwrite the reversion. A hangar that becomes the airport's property in 32 years has no residual value to you at that date, so the price should be repaid by rent during the term, and you will be selling a shorter lease if you exchange out again. Read the rent adjustment clause, the permitted uses, the assignment clause and any minimum standards the airport imposes on commercial tenants.
Depreciation on the building follows the 39-year class, and any amount paid for the lease itself is amortized under section 178, which adds renewal options to the term when less than 75% of the cost is attributable to the remaining base term. Identify a backup under the three-property rule in Reg. section 1.1031(k)-1, because airport consent is a condition you do not control; our guide to how many properties to identify covers the limits.
Related questions
Can I exchange a hangar with 20 years left on the ground lease?
Only if renewal options you hold bring the remaining term to 30 years or more. Otherwise the hangar is still real property, but it is not like-kind to fee real estate, so the sale is taxed unless the airport extends the lease before closing.
I keep my own plane in the hangar and rent half of it to another pilot. What qualifies?
The rented half is investment property and can be exchanged; the half used for your personal airplane is a taxable sale. Split the price on a reasonable basis such as floor area and keep the rent records.
Can I exchange a hangar into a DST?
Yes, if the hangar leasehold has 30 or more years to run with options, because a DST interest is treated as an interest in the trust's real estate under Rev. Rul. 2004-86. The DST then gives you a fee-simple position with no reversion date.
Does the airport have to approve my buyer?
Most airport leases require the sponsor's advance consent to an assignment, and FAA Order 5190.6B tells airport staff to check for that right. Put the consent period into the contract so it does not collide with your 45-day and 180-day deadlines.
Can I store a boat or RV in a hangar I buy as replacement property?
Only within the airport's rules. The FAA policy allows non-aviation items only where they do not interfere with aircraft movement or access, and the sponsor may restrict them further.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- Treas. Reg. Section 1.1031(a)-1, Property held for productive use (30-year leasehold example)
- Treas. Reg. Section 1.1031(a)-3, Definition of real property
- IRC section 1031, Exchange of real property held for productive use or investment
- IRS Publication 544, Sales and Other Dispositions of Assets
- Peabody Natural Resources Co. v. Commissioner, 126 T.C. 261 (2006)
- FAA, Policy on the Non-Aeronautical Use of Airport Hangars, 81 FR 38906 (June 15, 2016)
- FAA Order 5190.6B, Airport Compliance Manual (2009), chapter 12 lease review
- IRS Publication 946, How To Depreciate Property
- IRC section 168, Accelerated cost recovery system (leasehold improvements)
- IRC section 178, Amortization of cost of acquiring a lease
- Treas. Reg. Section 1.1031(k)-1, Deferred exchanges (identification rules)
- Rev. Rul. 2004-86