Are You Using Your Yacht as a Tax Deduction?
By Alan Olsen
Who doesn’t like spending time out on the open waters enjoying all the many luxuries that yachts have to offer? While most people only dream of owning a yacht, for many of the world’s ultra wealthy having a yacht is like having a second car: it’s a standard more than a luxury. However, although yacht owners are in a different income class than most, that doesn’t mean that purchasing and owning a yacht is cheap. In fact, it is quite expensive. The good news is, you can actually lower the cost of owning a yacht significantly if you play your cards right.
Chartering Your Yacht
As many yacht owners know, it just takes a little prudence to make your yacht work for you. The first thing you need to do is place your yacht in charter. That doesn’t mean you have to put in some foreign charter company, where you will rarely have the chance to use it. You can actually place it in a local charter company in a location that is convenient for you. By chartering your yacht, essentially, you are allowing a charter company to charter, or rent your vessel to other sailors by the day or week. It’s similar to owning a vacation home and renting it out most of the year. So in essence you are turning your yacht into a business.
When you decide to use your yacht as a business you are eligible for several tax savings, which are basically the same benefits that business owners get when they buy equipment for their business. When your yacht is placed into charter it becomes a business asset and is no longer considered a personal asset. Many yacht owners are actually able to reduce the cost of buying and owning a yacht by more than half. That is a significant savings, and you still get to enjoy the yacht for personal use as well. There are several other tax saving implications that also exist, including:
- Being able to take a one-time maximum deduction of up to $500,000 of the purchase price of the yacht in the year that you buy it, according to Section 179 of the Internal Revenue Code. If the purchase price exceeds $2,000,000, the benefit is reduced.
- A bonus depreciation deduction of half of the purchase price over $500,000 during the year of purchase.
- Being able to depreciate the adjusted cost basis of your yacht – which is the balance of the purchase price after the Section 179 expense deduction and the 50% bonus depreciation deduction – over 10 years.
- Deducting against your charter income and other employment income, as well as typical charter related expenses including insurance, slip fees, loan interest, repairs and property tax, etc.
- More income from chartering your yacht, which will vary depending on your yacht’s size and the charter company you select.
Contact GROCO for Tax Savings
Of course, if you are considering placing your yacht in charter for tax purposes, then you should first consult with a certified tax accountant. At GROCO we can help answer all your tax questions regarding purchasing and owning a yacht and placing it in charter. Please contact us today at 1-877-CPA-2006 or click here to connect with us online.