Buying a yacht through an LLC in Texas....Please explain this to me.

[belizesailor]

Originally Posted by HighTemp

I appear to having trouble grasping the financial benefits to purchasing a yacht through a Texas LLC. I would greatly appreciate some first hand insight on the subject.

We are looking to purchase a catamaran for cruising the Texas Gulf Coast. I certainly understand the liability benefits of doing it through an LLC, but I am having trouble with the financial benefits. I understand the ability to depreciate the value of the boat, and how that, as well as the expenses to operate and maintain it as deductions are passed through to ones personal income taxes. My trouble is specifically with county property taxes.

The boat would be berthed in the Kemah / Clear Lake area. Our thoughts were to put it into limited charter and make it available to some of the ASA schools for 114 classes when we were not using it. My concern is the Harris County Appraisal District yearly rendition rate, which is currently over 2.6% on all business property.

I have heard a number of mixed messages. My CPA's who do my business taxes on our primary business, indicate that the property tax is to be expected, but others in the local boating business say they have never heard of such a thing.

I just don't seem to be wrapping my mind around this. The amount of personal income tax offset seems to be greatly offset by the county property tax, thus making me question if forming an LLC in Texas to purchase the boat is even worth the trouble.

So anyone in the area, familiar with Texas LLC and property taxes, I would greatly appreciate your experiences and insight.

Havent read the whole thread, so apologize if this has already been addressed, but have owned boats & LLCs in Texas.

You cant apply LLC expenses or depreciation to your taxes unless the LLC/boat are actually being run as a business. Well...you can, but the IRS wont like it. Just owning the boat in a corporate entity (like an LLC) doesnt qualify. The IRS has published criteria for what qualifies and the limitations of what you can apply (typically limited by profit of biz...you cant for example apply $1M of expenses/depreciation to your personal taxes if the biz only made $100K).

Texas Franchise Tax filings are a recurring PITA. They must be filed every year even if zero taxes are owed...and if you get behind its a PITA to fix. Even had Texas come after me for a single delinquent filing on a company that was dissolved over a decade ago and never owed any Franchise Tax...just silly.

Never heard of or paid property tax on a boat in Texas, but havent lived in Texas in a long time.

[silversailor]

STOP !!!!!
Most of those who have commented are, I'm sure, well intentioned, but clueless. The issue of whether or not to own your vessel as an individual or in an LLC is not one that can be made in a vacuum and requires a careful analysis of issues such as use, liability, ownership, and the new tax code. Don't expect to get a correct answer here. You'll get what you pay for!

[Mithril Bham]

Don't know about Texas but do know a bit about WA state. It is surprising how little they know about this niche. LLC is essentially the same as a sole proprietorship so liability does not apply.My understanding (and I might be wrong) is that you can claim your boat as a biz and not have to make a profit for five years thus giving you a write off during that time. There are much better detailed descriptions above. If you use it for ASA or charter then you should check with the state in order to find out personal use vs commercial use. I have had to jump through some hoops but it is probably worth it.

[foggysail]

Originally Posted by silversailor

STOP !!!!!
Most of those who have commented are, I'm sure, well intentioned, but clueless. The issue of whether or not to own your vessel as an individual or in an LLC is not one that can be made in a vacuum and requires a careful analysis of issues such as use, liability, ownership, and the new tax code. Don't expect to get a correct answer here. You'll get what you pay for!

You're right! That was why in post 12 I recommended that before venturing into an LLC the OP should check the risks/benefits/rules with an accountant, implied an accountant familiar with both state and fed tax laws.

[Mithril Bham]

Having dealt with this with this for decades consulting an "accountant" doesn't work. I have only found one accountant in this state that knew his stuff and he is now retired. There is so much haze surrounding this subject that I have been truly amazed. This extends to federal.

[CSY Man]

I am doing it: My boat is owned by an LLC and offered for charter. It is also registered as a commercial charter boat and carry commercial insurance including high liability.
There is a depreciation, can’t remember how much, but 10 years sound familiar. I also have a charter business license from the City and a blessing from the USCG after the Examination
If that is not enough or the IRS, I have another and smaller boat in my name for pleasure use.
The charter boat will probably never show a profit as I am only doing it part-time.
Never had to pay property taxes on the boat in Florida. Also excemt from Sales Tax.

[Capt Jerry]

I think you have given some excellent advice.

[flyingfin]

Welcome to the real world people. The media attacks big business all the time, but they are the ones who pay to keep our mighty governments running.

Every business in most states pay taxes on both their office buidings, stores or warehouses as well as their tools, computers, chairs, desks, air compressors, anything the tax man can find in your shop. In Florida they even added fire extinguishers to our tangible property list!

[bejammon]

Hi all, (corporate) tax attorney here and first time poster on these forums. While tax law interpretations are like a**holes in that everybody has one, I've attached a recent tax court case that addresses the elements that define how to maximize the chances the IRS (and more importantly if it comes to it, the Tax Court) will agree your boat is a legitimate active business. While not the only method/way to obtain these results, it is a good roadmap for proper management of a charter boat to obtain maximum tax advantage. Good Luck.

[Cool Hand Luke]

Originally Posted by bejammon

Hi all, (corporate) tax attorney here and first time poster on these forums. While tax law interpretations are like a**holes in that everybody has one, I've attached a recent tax court case that addresses the elements that define how to maximize the chances the IRS (and more importantly if it comes to it, the Tax Court) will agree your boat is a legitimate active business. While not the only method/way to obtain these results, it is a good roadmap for proper management of a charter boat to obtain maximum tax advantage. Good Luck.

Great find!!! Reading through it right now. Very useful and great info for anyone wanting to learn a little bit more.

[jmschmidt]

You might offer to pay your accountant. They usually provide better advise if you do. I have an excellent one in Tacoma but his firm does not work for minimum wage.