Boating As A Business
Boating as a Business – Section 179 of the Tax Code
For years, yacht buyers have recognized that there is a completely legitimate way to significantly reduce the cost of owning a yacht by structuring ownership in a manner that allows you to write-off the purchase price of your yacht and deduct most ownership expenses (insurance, slip fee, maintenance) against your employment income. This can be done by placing the yacht in charter while still having it available for your use and following some basic tax law guidelines. In addition to providing a tax shelter, your yacht will also generate charter income to help offset ownership expenses.
The Shared Economy
First, let’s discuss the tax benefits of placing a yacht in charter and then we’ll discuss whether this will work for you. The key to understanding why yachts placed in charter can generate significant tax benefits is that these are the same tax benefits available to businesses for the purchase of business equipment.
By placing your new yacht in a charter management program you are converting it from a personal asset to a business asset, essentially an equipment rental business. The relationship between you and the charter management company is structured so that you own the yacht and they assist you in managing your yacht rental business.
Tax Shelter and Cash Flow Advantages of Charter Ownership
Here is a summary of the tax and income benefits available to the owners of new yachts purchased and placed in charter:
- Under Section 179 of the Internal Revenue Code, you can take a one-time expense deduction in the year of purchase equal to the purchase price of your yacht up to a maximum deduction of $500,000.
- You may also take a bonus depreciation deduction in the year of purchase of 50% of the amount of the purchase price over $500,000.
- You can depreciate the adjusted cost basis of your yacht (the balance of the purchase price after deducting the Section 179 expense deduction and 50% bonus depreciation deduction) over 10 years.
- You can deduct against your charter income and other employment income all ordinary and necessary charter related expenses including slip fees, insurance, repairs, loan interest, property tax, etc.
- You will receive income from the charter of your yacht, the amount which varies depending on the size of your yacht and the charter company you use.
Norton Yachts is pleased to be the only sailing charter program on the lower Chesapeake Bay. Give us a call today to discuss placing a new Jeanneau in our charter program today.
Please note that we are not tax advisors and and you will need to evaluate the tax benefits of charter ownership for yourself and in consultation with your tax advisor.