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Old 20-08-2019, 06:41   #1
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US Tax benefits for having a boat in charter

I am looking into this and curious what people are finding regarding this. I'm reading about it and that seems to make putting a boat in a charter fleet a financially reasonable option

https://nicholsonyachts.com/yachts-as-a-tax-deduction/

Basically deducting up to $500k year of purchase from your AGI, saving your tax rate * $500k, and then can deduct 10% of value annually to offset income from the boat.

Anyone doing this? Does it matter if the boat is outside of US waters?
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Old 20-08-2019, 06:51   #2
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Re: US Tax benefits for having a boat in charter

I wonder if it’s still accurate given the recent tax restructuring.

Figure roughly 30% times $500k that’s $150k tax deduction? Sounds too good to be true.

ETA according to the article the boat has to be a business expense. I suspect the tax deduction is only good against business income from the boat, not against personal taxes. But I’m not a tax expert. Though it still sounds too good to be true.
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Old 20-08-2019, 06:58   #3
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Re: US Tax benefits for having a boat in charter

from what I saw it's a new law from the 2017 tax cut program put into effect

It would have to be owned by an entity, like an LLC, but you can pass through that loss to personal taxes on a schedule K and reduce AGI by the loss.

I paid 25% tax rate last year, had been 29% prior to the new tax laws. There is a BONUS DEPRECIATION also of 50% of the remaining purchase price above $500k you can take too.

On a $1m boat that is $750k write off potential year 1 I think.
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Old 20-08-2019, 07:39   #4
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Re: US Tax benefits for having a boat in charter

I guess this is talking about accelerating depreciation of a capital asset?
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Old 20-08-2019, 07:51   #5
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Re: US Tax benefits for having a boat in charter

I'm not entirely clear on the tax implications which is why I'm posting it. Seems like it's accelerated depreciation?
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Old 20-08-2019, 08:08   #6
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Re: US Tax benefits for having a boat in charter

Talk to a CPA with charter co's as customers
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Old 20-08-2019, 08:26   #7
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Re: US Tax benefits for having a boat in charter

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Originally Posted by john61ct View Post
Talk to a CPA with charter co's as customers
I was hoping to talk to customers of CPAs who own charter boats
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Old 20-08-2019, 09:54   #8
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Re: US Tax benefits for having a boat in charter

No, the 2017 tax cut did not make this possible. What it did do was take away any deductions if the activity was considered a hobby and not a business. If you use your boat personally at all, the IRS will most likely disallow any losses related to a charter "business". You should go to the IRS website at www.irs.gov and type in the search box "hobby vs business" and read the entire publication that the IRS has regarding the difference between a hobby and a business.

And watch the dates of the items you are reading. Anything printed prior to 2018 about how to deduct hobby expenses is obsolete right now, because they are no longer deductible.
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Old 20-08-2019, 09:59   #9
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Re: US Tax benefits for having a boat in charter

Reference:

Bonus depreciation Section 168(k) is relevant.

https://www.bluewateryachtsales.com/...r-boat-buyers/

Of prospective issue:

I suspect the boat's charter would need to be USA so as to avail USA tax benefits. It is likely that there are not a lot of USA based charters for sailboats. Where the business is located defines which tax jurisdiction applies. If the boat is chartered for use outside the USA then one is likely looking at foreign income matters.

If the LLC does not turn a profit after a few years then I suspect that Hobby classification could arise as to the LLC being a real business.

Please note that losses from a boat charter can be limited in many ways including at-risk rules, passive activity rules, as well as the new excess business loss limitations. You should speak with your attorney or accountant.
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Old 20-08-2019, 10:03   #10
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Re: US Tax benefits for having a boat in charter

If it was a good deal they wouldn’t be hawking for customers. Then figure the wear and tear on the boat, which we’ve watched first hand.

If it sounds too good to be true.....
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Old 20-08-2019, 10:04   #11
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Re: US Tax benefits for having a boat in charter

I had a Bene. 413 i purchased thru "Moorings" in year 2000. From my recollection i was able to deduct depreciation based on purchase price, interest on loan, and expense required to visit property (boat) twice a year. It was based in La Paz Mexico.
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Old 20-08-2019, 10:05   #12
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Re: US Tax benefits for having a boat in charter

I think John is right - you should speak to a CPA, tax lawyer or other tax advisor. It's up to you, but if you have the means to use this to shield enough income to make it meaningful I think it would be in your best interest not to rely on an internet forum for tax advice.

I know with certain vehicles the Sec. 179 deduction is limited to $11,600, but I don't know whether this really means motor vehicles or whether it would extend to boats. I think there are also limits as to how much personal use you can use the boat before you lose the deduction entirely, and that any deduction must be reduced by the percentage use of the asset which is personal use. In other words, if you use the boat 25% of the time for your personal use, then you have to calculate your deduction and then reduce it by 25%.
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Old 20-08-2019, 11:08   #13
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Re: US Tax benefits for having a boat in charter

Assuming the most rosy of tax benefits: That being one can take the full depreciation in your first year [i.e., no at risk limitations, the vessel is chartered in the USA, etc.] multiply that pass through deduction by your marginal tax rate. THEN, multiply that tax reduction value by the time value of money, 2, 3 or 4%. Then you are talking about beer money.

Accelerated depreciation and deductions are of very modest benefit because the time value of money is historically very low. Definitely not anything to get excited about, or seeing $$$$$.

One is just shifting the depreciation deduction to an earlier year of a short time period. Charters are typically five year arrangements if I recall. So there is little time to value and little value to time. Small times small is very small.
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Old 20-08-2019, 11:15   #14
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Re: US Tax benefits for having a boat in charter

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Originally Posted by Montanan View Post
Assuming the most rosy of tax benefits: That being one can take the full depreciation in your first year [i.e., no at risk limitations, the vessel is chartered in the USA, etc.] multiply that pass through deduction by your marginal tax rate. THEN, multiply that tax reduction value by the time value of money, 2, 3 or 4%. Then you are talking about beer money.

Accelerated depreciation and deductions are of very modest benefit because the time value of money is historically very low. Definitely not anything to get excited about, or seeing $$$$$.

One is just shifting the depreciation deduction to an earlier year of a short time period. Charters are typically five year arrangements if I recall. So there is little time to value and little value to time. Small times small is very small.
It's by no means beer money when you include value of "free" charter that you would have purchased. On a leopard 50 through moorings a half share of the boat (if I split it with someone) would allow me to take $375k off my AGI year one, assuming IRS was fine with it. That's a lot of $$. Tax savings on future year depreciation would pay for plane tickets down to the boat. I see it as a 17% annual rate of return on the $121k DP, assuming I could count the deductions/depreciation, and I saved $20k of charter fees I would have spent annually. That also takes into account the $45k or so loss in principal from down payment to equity at end of term.
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Old 20-08-2019, 11:27   #15
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Re: US Tax benefits for having a boat in charter

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Originally Posted by Hoosierdoc View Post
It's by no means beer money when you include value of "free" charter that you would have purchased. On a leopard 50 through moorings a half share of the boat (if I split it with someone) would allow me to take $375k off my AGI year one, assuming IRS was fine with it. That's a lot of $$. Tax savings on future year depreciation would pay for plane tickets down to the boat. I see it as a 17% annual rate of return, assuming I could count the deductions/depreciation.
The two weeks of your personal use is not free, it is two weeks that are calculated into the return the charter is yielding you as that is two weeks of lost potential revenue for use of your boat. And of course, two weeks of usage and wear and tear to your boat. Charter boats get lots of wear and tear, far more than personal usage, your asset truly depreciates

Do realize that if the charterer was able to yield a true 17% ROI to the vessel owner they would readily fund such fleets themselves, or via institutional funding and would not dink around with individual arrangements.

375,000 X your effective marginal tax rate X 3% = $?,??? during the first year. But then you don't receive such shelter is year two, and owe much higher taxes from charter income in the subsequent years, so you have to apply those comparatively negative cash flows of taxation into your PV analysis.

Again little time and little time value.

Just saying.
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