Your Yacht is a Tax Deduction

What Savvy Yacht Owners Have Known For Years

Owning a yacht is a great experience that shouldn't be diminished by the difficulty of paying for it. For years, many savvy yacht buyers have been significantly reducing the cost of owning a yacht by placing their yacht in charter. This can allow you to write-off the purchase price of your yacht and deduct most ownership expenses like insurance, slip fee, and maintenance, against your employment income. In addition to providing a tax shelter, your yacht will also generate charter income to help offset other ownership expenses.

Placing your yacht with a local charter company in a marina that's convenient for you will also keep it available for your own personal use. 

Your Boat As A Business

First, let’s discuss the tax benefits of placing a yacht in charter and then we’ll discuss whether this will work for you.

Yachts placed in charter can generate significant tax benefits the same way other businesses can write-off the purchase of business equipment. By placing your yacht in a charter management program you're converting it from a personal asset to a business asset, essentially an equipment rental business. Much like a rental management service for an Airbnb, you still own the yacht, and the charter management company assists you in managing your yacht rental business. While placing your yacht in charter changes the classification of it for tax purposes from a “personal” to a “business” asset, it won't prevent you from using your yacht.

At Cruising Yachts, we've been placing new Jeanneaus and Hunters in charter for years and have seen these yacht owners reduce the costs of purchasing and owning their yacht by OVER 50% through a combination of tax deductions and charter income. Actual savings vary depending on the size of the yacht and the location in which it is placed in charter. 

Tax Shelter and Cash Flow Advantages of Charter Ownership

Let's get down to the nitty gritty. Here is a summary of the tax and income benefits available to the owners of new yachts purchased and placed in charter in 2012:

  1. 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 $139,000. This benefit is reduced for yachts priced over $560,000 (a subject beyond the scope of this article); plus
  2. You also can take a bonus depreciation deduction in the year of purchase of 50% of the amount of the purchase price over $139,000; plus
  3. 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; plus
  4. You can deduct against your charter income and other employment income all ordinary and necessary charter related expenses including, for example, slip fees, insurance, repairs, loan interest, property tax, etc.; plus
  5. You will receive income from the charter of your yacht, the amount of which varies depending on the size of your yacht and the charter company you use.

As an example, on the purchase of a $350,000 yacht placed in charter in 2012, the total deduction available to you under paragraphs 1 – 3, above, is $265,600 resulting in a savings of $92,650 just in the year of purchase alone (assuming you are in the 35% tax bracket and can utilize the full deduction). To see how this deduction is calculated, see the Section 179 Tax Deduction Calculator.

As you can see, this substantial tax deduction is an attractive tax planning opportunity to deduct against your employment income. It is not available to offset passive rental income, capital gains or IRA withdrawals.

And this may be the best news of all...the Section 179 and Bonus Depreciation deductions are exempt from the AMT calculation!

Professional Maintenance and Support

Placing your yacht in charter also is an excellent way to ensure that it will receive professional maintenance, service and care. Yachts in a charter fleet are typically washed weekly and cleaned inside and out after each charter. Routine maintenance is performed on a regularly scheduled basis and damage promptly repaired. That means you can spend your time sailing and not worrying about cleaning, maintenance and repairs.

You can also trust that your yacht is in good hands. Your charter management company will require that every charter customer demonstrate that they are qualified to operate the yacht in order to minimize the potential for any damage. Damage caused by a charter customer, up to the amount of the insurance deductible, is paid for by the damage deposit (cash or credit card) they make up front when chartering the yacht.

Is Charter Ownership Right For Me?

In deciding whether charter ownership is right for you, ask yourself three questions:

  1.  Am I paying income tax on taxable wages or salary from my work or business?
  2.  Do I have a limited amount of time to use my yacht?
  3.  Am I willing to allow qualified people to charter my yacht when I’m not using it?

If the answer to these questions is “yes” or “maybe”, then charter ownership is something you should consider! The reality is that most people use their yacht once a month, on average. Instead of letting your yacht just sit there, why not put it to work? 

The Next Step

Charter management companies across California are actively pursuing new yachts to place in their fleet, especially Jeanneaus and Hunters. If you have an interest in learning more about placing a new yacht in charter, contact us or call us at (213) 260-0155.  We understand that charter ownership is right for some people and not right for others, and we’re always glad to spend some time discussing it with you and answering your questions. If you decide to go ahead, we’ll help you select the yacht that is right for you and also help you place it with a reputable charter company in your area.  We’ll walk you through the entire process and you’ll find that buying a yacht and placing it in charter is an easy and enjoyable experience.

Two Final Caveats

Two final things to keep in mind:

  1. We’re not tax advisors and are not able to give you advice on your specific tax situation. Everyone’s personal financial situation is different and you will need to evaluate the tax benefits of charter ownership for yourself and in consultation with your tax advisor.
  2. Placing a yacht in charter won’t enable you to afford a yacht that is well beyond what you might otherwise be able to afford. As a rule of thumb, if you have the income to afford a yacht at a certain price level, you’ll be in a position to take advantage of the tax benefits summarized above, thereby significantly reducing your cost of ownership.

If you have any questions or would like further information on purchasing and placing a new yacht in charter, don't hesitate to contact us.

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