Questions About Activly Chartering Out Your Boat

[Rich_Maler]

I have been entertaining the thought of upgrading to a larger boat (30’or so) and putting it into active charter. I have been doing a lot of research on this and wanted to get feedback from any one who owns a boat and charters it out either on their own or through a broker. I was thinking of buying a boat through one of the large charter companies a few years back and got some great feedback from this site. I have put that on hold right now and modified the short term plan to including getting a slightly larger boat than I currently have and offsetting costs by chartering it out during the summer. Here comes the questions: 1- Can I deduct depreciation of the boat on a five year schedule as I would any other piece of business equipment. My understanding of buying a boat through the Moorings for example, is that it would be considered a passive charter which would not allow for that type of deduction. If I incorporated and ran my boat as a business and actively chartered it , perhaps with the assistance of a broker, would it then qualify for the depreciation deduction? Also are there rules for depreciating an older boat, or is the sale price if appropriate able to be used as a basis no mater the age? 2- I would imagine all other costs would be deducted against revenue as in any other business. Any thing else I should be aware of here? 3- If the cost of the boat is 50K and dockage and maintenance 5K a year that would give the business an effective yearly expense of 15K if I can depreciate it in the standard way. My concern is that modest predictions of revenue at our inland lake might only yield 5-6K per year. How long can losses go on before the IRS considers my new business a hobby?
My goal is to try to offset costs on a larger boat in the next few years while my family situation does not allow me much time to sail. After that time I can close the business and “buy” the boat back at Fair market value, sell it, or if it is by chance profitable than all the better. At any rate if it is not profitable it will give me experience owning a boat as a business and hopefully a nice tax deduction which could be real money in my tax situation. If any one has experience in this area I would love to here from you. Thanks in advance for your help. (PS. I will be keeping a membership in a local sail club not only to possibly generate charter business but also to show that the boat I will be buying is an actual business and not for personal use. Of course sailing it to check out newly installed gear or taking it to be pumped out fall within the realm of business use.)

[Pblais]

I think you need to look at a few ways.

Tax advice from the Internet is not worth what you pay for it. Your state laws both for your side of it, the business side of it, and the taxes at time of sale are not the same all over. Unless you can depreciate the boat you'll pay capital gains taxes as a company and sales taxes as a buyer. All this is up in the air depending on where you live and or keep the boat.

Now just look at the charter side of it. Chartering a 30 ft boat will be difficult - it's too small. Charter boats for top tier charter companies are ordered by them per their specifications and you hold the bank note. You need to get down the food chain before you can offer a boat you already own into charter. People that charter want nice new boats with room.

Insurance. It costs more if you charter the boat vs if you don't - quite a bit more. Not a problem with the top tier charter companies since they pay for it.

Unless you really want a much larger nice boat you are just going to go through all the hoops as if you did and the ability to save any money seems more doubtful. Take the same pot of money and let it generate interest and charter a boat for your own use until you are ready to own and use a boat. This is the sweet spot for doing charters. Not being able to use a boat is the first indicator that you should be selling not buying. You should be doing the charter yourself - not someone else. You probably would be better and money ahead in a 33 to 36 ft used boat you buy when you are ready to own.

[Rich_Maler]

Thanks for the input pblais. You are right about chartering. I have been fortunate enough to go on a several week long charters over the past couple years and will hopefully continue to do so. My recent charter in Rhode Island is what actually started my wheels turning. The owner chartered his beautiful Bristol 355 to me through a broker. He only charters the boat for a couple of weeks a year to off set his upkeep costs. I have contacted him and my accountant to get more info about the tax advantages. I was hopping that someone on the forum also chartered their boat and can give me some insight. About time, that is relative I guess. I do have enough time to use a boat at least some of the time. That brings up the question of using a business asset for personal reasons and I know enough about taxes to anticipate the IRS frowning on that.
You are right about boat size for a typical BVI type charter, but on our lake I might charter for long weekend and the like, or even day charters. It might take a slightly larger boat , the 30' was just a starting point. There is a fractional club on the lake now that uses 32' and 34's. The club is actually more of a time share that fractional ownership. There are two other outfits that day charter 22-27's and one 36' that is in poor shape and way overpriced, IMO. So there may be merit to the business model. The depreciation, if allowed, would be key though.