Pros and Cons of buying a boat in US Charter

[fallingeggs]

FWIW, the 100 percent depreciation will only reduce income generated from the chartering business. It won't offset any other earned or investment income you may have.

[piloto]

There are many ways to structure purchases/expenses in business and having a boat within that context doesn’t necessarily have to be within the framework of a charter business. I bought my boat as a floating office for my business activities, registered with uscg for purposes of “registry” and was audited twice within the last five years. You need not fear an audit process if, in fact, you can document and justify the context of any deductions. I walked out of each audit with findings of full compliance and no assessments or recovery. I found the agents to be objective, reasonable and professional.

[GordMay]

Greetings and welcome aboard the CF, dharaway.

[jbinbi]

Originally Posted by fallingeggs

FWIW, the 100 percent depreciation will only reduce income generated from the chartering business. It won't offset any other earned or investment income you may have.

I don't believe this is correct. The depreciation directly reduces your total income. So if the boat costs 100k, and you can take an accelerated section 179 depreciation, in year one you could have $0 of income from the business, say 100k in income from anything else (salary, investments, etc) and your total reported income that you pay taxes on is going to be 100-100=0.

If there is another accountant on this thread, pls correct me if I am wrong.

[fallingeggs]

Originally Posted by jbinbi

I don't believe this is correct. The depreciation directly reduces your total income. So if the boat costs 100k, and you can take an accelerated section 179 depreciation, in year one you could have $0 of income from the business, say 100k in income from anything else (salary, investments, etc) and your total reported income that you pay taxes on is going to be 100-100=0.

If there is another accountant on this thread, pls correct me if I am wrong.

The 100% depreciation is an expense of a business and can only decrease gross income of a business. W-2 wages and investment income is generally not gross income from a business. If there is not enough gross business income to soak up all the depreciation in year one, it becomes a net operating loss. This NOL, again, can only reduce future net business income.

That said, you are right that I was quick to simplify. If you operate another business, say a coffee shop, such other income might be able to utilize the expenses or NOL generated by the charter business. That could be useful if you are a small business owner. Might even be nice if you rent out properties and generate rental income, but that question is harder.

Ask the local CPA! We love the business.