Saba 50: 2019 Saba Ordered!

[CalmSeasQuest]

As I write this; I’m equal parts exhilarated and terrified. I just signed a contract and wired the deposit for the purchase of a new FP Saba, ex-factory September 2018. I’m certain the terrified part will pass as I recover from the shock of all the zeros left of the decimal point. This is the culmination of a life-long dream (and decades of hard work and saving.) We spent the past 2 years in research attending every major boat show possible; and spending time aboard as many boats as possible

Our plan is to take delivery in La Rochelle, spending a couple months in Europe before heading to Las Palmas and the TransAt to St. Martin where we hope to enjoy Christmas with family. Then on to Ft. Lauderdale for some additional buildout before returning to the BVI’s where S/V Wind Chill will enter light crewed charter sometime in March 2019.

As for our charter arrangement; after having spent many months (and tens of thousands of dollars with our accountants and tax attorney) we decided against the “yacht as a business” model. Instead we’ll treat this as a private vessel using depreciation and costs only to offset charter income. This provides us complete control over the live-aboard crew (which we will hire and manage), location and booking schedule (read as making sure the vessel is available for our use ) without having to hide or reclassify our personal use.

Our hope is this will provide for some income to offset operating costs while maintaining the boat in Bristol condition until we’re ready to go “fuller” time cruising.

We’ve got until February 2018 to finalize the build plan (Maestro Crew) and factory options. The current plan is do some of the ex-factory outfitting in La Rochelle (safety equip, props, parasailer, Seagull…) then complete the fitting out in Ft. Lauderdale.

So much to do in the next 10 months including tons of equipment research, more training for myself and family, and developing and executing a plan to create a first-class, crewed charter yacht experience.

Thank You to CF and all those that contribute – I’ve learned so much from the members of this community and hope to further rely on everyone as we move forward with the myriad questions that will undoubtedly arise.

Best,

-Tom

[pstadt]

Hey Tom, congratulations and best of luck with the new boat...exciting times!

Pat

[BlueBuddha]

Originally Posted by CalmSeasQuest

As for our charter arrangement; after having spent many months (and tens of thousands of dollars with our accountants and tax attorney) we decided against the “yacht as a business” model. Instead we’ll treat this as a private vessel using depreciation and costs only to offset charter income.
-Tom

Congrats! Great boat choice.

I am confused by your statement about your charter plan. By "yacht as a business model" I assume you mean you will bypass the rapid depreciation option (i.e., 179). We are doing the same because our charter program is such that we will not qualify as being actively involved (not active income).

But you can not offset the depreciation against charter income unless you treat it as a business. It can be passive income, without all the requirements of active ownership, but it is still a business for IRS purposes, not just a private vessel. In our case, we will not be able to use 179 because we are not actively involved but the only way for us to use depreciation to offset the charter income is consider the boat a business asset.

Maybe it is just semantics. Anyhow, congrats and best of luck next year during the commissioning and delivery. It's a very exciting time!

[rallyman1122]

Congratulations. I hope all works out for you and you cover the costs of crew and depreciation.

I always wonder about the cost of Saba 50 or a Lagoon 50 vs. the cost of a semi customer like a Royal Cape majestic 53 or a St Francis 50 that come pretty much ready to go.

[CalmSeasQuest]

Originally Posted by pstadt

Hey Tom, congratulations and best of luck with the new boat...exciting times!

Pat

Thanks Pat!

[CalmSeasQuest]

Originally Posted by BlueBuddha

Congrats! Great boat choice.

I am confused by your statement about your charter plan. By "yacht as a business model" I assume you mean you will bypass the rapid depreciation option (i.e., 179). We are doing the same because our charter program is such that we will not qualify as being actively involved (not active income).

But you can not offset the depreciation against charter income unless you treat it as a business. It can be passive income, without all the requirements of active ownership, but it is still a business for IRS purposes, not just a private vessel. In our case, we will not be able to use 179 because we are not actively involved but the only way for us to use depreciation to offset the charter income is consider the boat a business asset.

Maybe it is just semantics. Anyhow, congrats and best of luck next year during the commissioning and delivery. It's a very exciting time!

Thanks! I'm sure you're right - I've likely mis-characterized the venture from a tax perspective (I guess there's a reason we pay tax attorneys to handle it )

As I understand it; we walked away from accelerated depreciation and Sect 179 as my team had real concerns regarding defending an audit (and the associated costs) even with proper record keeping and a demonstrable "active" role in the endeavor. I also understand that changes in 179 now further restrict deductions to earnings made by that entity; seemingly rendering it useless in our case. Perhaps the greatest concern is our significant use of the vessel for personal use and intent to go near full-time cruising in a few years. Our refusal to try and conceal personal use as an asset inspection or familiarization coupled with recapture were the issues that tilted the risk/reward calculations.

My initial explanation to my accountant and tax attorney (after we got past the "you want to do what?!?!? phase) was to explain....

• I'm buying a sailboat for personal use and,
• I intend to make it available for crewed charter when not in use personally (I think I used the BoatBnB analogy.)
• Determine how to structure it within all IRS guidelines with minimal additional audit risk to take advantage of whatever tax advantages (if any) that might exist and limit personal liability.

In the end (again if I understand it correctly) the only deductions that will apply will be restricted to offsetting any "profits" (LOL) generated by the boat and perhaps the second home interest tax deduction.

The irony is that our plan truly does meet the requirements of "active participation" (unlike may stock programs pitched by some charter operations) but...For us; when all risks and benefits were considered, the potential reward simply wasn't worth the additional exposure.

The dollars quickly get so ridiculous, I try to focus solely on the life-long dream and the once-in-many-lifetimes family experience and just accept it will be the worst financial decision I'll likely (hopefully) make. Little chance I'll forget it as I'm reminded by our accounting and tax professionals regularly

Best,

-Tom

[Kentm]

Very interesting evaluation of the "Boat as a Business" model. I think your accountants have done well for you and you have done solid planing. I have not spent time evaluating the model, but have been skeptical of it's use.

[CalmSeasQuest]

Originally Posted by rallyman1122

Congratulations. I hope all works out for you and you cover the costs of crew and depreciation.

I always wonder about the cost of Saba 50 or a Lagoon 50 vs. the cost of a semi customer like a Royal Cape majestic 53 or a St Francis 50 that come pretty much ready to go.

Thanks - We spent a lot of time on all the potential cats including the the Majestic in Annapolis. After two years of research, we came to the (now obvious) conclusion that every boat requires compromise.

Majestic - LOVED much about the boat but the sheer number of steps rendered it a poor choice for us (Cindi has mobility issues and my daughter has special needs (Down Syndrome.)

Lagoon 50 - Looks great, but we focused solely on Sport-Tops (flybridge is out due to the above mobility/special needs restrictions.)

L450S - This was our leading candidate for most of our research time. Only after chartering one did items that made it less-suited for our needs appear (it's a wonderful vessel.)

Helia - Chartered and loved much about the boat. The Saba resolved most every concern we had about the Helia.

I also thought initially I would not like the split helm design on the FP's but after chartering and living on both....I found we strongly preferred it over the combined helm/winch station. So many of our initial (and we thought well-informed opinions) turned out to be wrong after living on the boats for more than a week.

We also spent time with Leopard looking at their new 50' (sport-top version) including a long discussion with Randy and Lenny (from Happy Together) who have one on order. Although we liked many aspects, lack of access to charter options (aside from Moorings) limited our interest and having to reach the boom under adverse conditions looked like a less-than-ideal proposition.

In the end and after exhaustive research - The Saba simply felt like home

[CalmSeasQuest]

Originally Posted by Kentm

Very interesting evaluation of the "Boat as a Business" model. I think your accountants have done well for you and you have done solid planing. I have not spent time evaluating the model, but have been skeptical of it's use.

Thanks Kent,

I really wanted it to work and spent more thousands that I want to recall vetting a couple versions with out attorneys including reviewing numerous recent cases. Having been through an IRS business audit before and the resulting battle, I'm painfully aware of the excruciating defense costs. Even though we were totally victorious with a ZERO TAX outcome, it was still a total loss as we spent ~$200,000 in accounting and legal defending the false claims (not to mention the 2 years of personal torture it took to get it resolved.)

Bottom line - In our specific case, the short-lived benefits simply weren't worth the risk and limitations it placed on our use of the vessel. With that said, there are many that are successful with the Boat-as-a-business model.

[Kentm]

I'm in the process of evaluating a purchase in the next year. Your thinking on your purchase is very helpful. I'm trying to evaluate the risks of "the worst financial decision". I have a low tolerance for IRS risk. I also, as you, do not want limitations on my use.

Thank you for sharing your thoughts

Kentm

[BlueBuddha]

Originally Posted by CalmSeasQuest

Thanks! I'm sure you're right - I've likely mis-characterized the venture from a tax perspective (I guess there's a reason we pay tax attorneys to handle it )

As I understand it; we walked away from accelerated depreciation and Sect 179 as my team had real concerns regarding defending an audit (and the associated costs) even with proper record keeping and a demonstrable "active" role in the endeavor. I also understand that changes in 179 now further restrict deductions to earnings made by that entity; seemingly rendering it useless in our case. Perhaps the greatest concern is our significant use of the vessel for personal use and intent to go near full-time cruising in a few years. Our refusal to try and conceal personal use as an asset inspection or familiarization coupled with recapture were the issues that tilted the risk/reward calculations.

-Tom

Yes, we are talking the same language. Passing on the 179 option to reduce the risk is reasonable. In our case, we do not qualify for 179 so it was not even an option. But you will still be creating a business entity to be able to use the depreciation and related costs to offset the charter income. The depreciation without 179 is 10 years or 10% of hull value per year. So the depreciation, even at the slow depreciation schedule, will be enough to offset the light charter income.

Best wishes.

[BlueBuddha]

Originally Posted by CalmSeasQuest

Thanks Kent,

Bottom line - In our specific case, the short-lived benefits simply weren't worth the risk and limitations it placed on our use of the vessel. With that said, there are many that are successful with the Boat-as-a-business model.

Sorry I know I sound like I am perseverating about this semantics issue, but this is important for those not familiar with this issue.

Although there are websites that equate the so call "Boat-as-a-Business" model with taking the 179 IRS benefit, the IRS benefit refers only to a technique of accelerating depreciation in certain kind of businesses. There are many charter businesses that do not qualify for 179 and they are still using the "Boat as a Business".

Specifically, every time you use your personal vessel to generate income (charter) and you want to deduct expenses (even if only non-accelerated depreciation) against this income, you are using your Boat as a Business for IRS purposes. The IRS only allows to deduct depreciation and other expenses against your charter income IF those are qualified business expenses, which would only be the case if the boat is being used as a business.

So whether or not an owner chooses to to use the 179 accelerated depreciation, it does not impact whether they are using the boat as a business IF they plan to offset the charter income with depreciation and/or other expenses.

So the OP is choosing, reasonably given his context, to not use the 179 but he is still using his boat as a business.

Best.

[CalmSeasQuest]

Thanks Blue,

You explained it far better than me. The boat will be held in an LLC and expected tax deductions (actual business costs and depreciation) are limited to simply offsetting charter earnings.

In the end, I guess it just means that no taxes should be owed on charter earnings.

[Kenomac]

Nice choice on the boat, very poor choice regarding cruising plan. Your's was our original plan which was modified "on the fly" on our way over to the Caribbean.

You should instead take a left turn into the Med to spend at least three seasons before heading west over to the Caribbean. There's much more to see over here and you may not want to leave. Also much easier to learn your boat systems and be close for any warranty work that needs to be done as your boat shakes out.

[CalmSeasQuest]

Originally Posted by Kenomac

Nice choice on the boat, very poor choice regarding cruising plan. Your's was our original plan which was modified "on the fly" on our way over to the Caribbean.

You should instead take a left turn into the Med to spend at least three seasons before heading west over to the Caribbean. There's much more to see over here and you may not want to leave. Also much easier to learn your boat systems and be close for any warranty work that needs to be done as your boat shakes out.

Thanks Kenomac,

You have no idea how much discussion there has been about "turning left at the big rock". That would be our overwhelming choice but unfortunately I need more time prior to exiting my business and keeping the boat in the Caribbean for a couple years (at least at this point) seems to make the most sense (frequent family travel.)

With all that said, we'll see what happens in makes when it comes time to make the turn

Best,

-Tom