Your Next New or Pre-Owned Boat Purchase Could be a Complete Tax Write Off!
If you have, or are interested in, a boat-based business but have been on the fence about your next purchase, it’s time to quit procrastinating and find the next yacht for your operation. In the 2018 tax legislation, there are new provisions which could provide substantial federal tax benefits to purchasers of boats, both new and pre-owned, through 2022. Bluewater Partner, Dan Reitz helps break down the new tax code so it’s easily digestible.
To qualify for these benefits, the buyer must be an entity (corporation, partnership or LLC) that will rent or charter the vessel or use it for another legitimate business purpose. So long as that requirement is met, then 100% of the purchase price can be written off as “bonus depreciation” in the year of the purchase.
Tax depreciation write-offs will apply to both yacht purchases and major upgrades
Another benefit of this new tax provision is that there is no dollar limit on the purchase price! The bonus depreciation write-off also applies to any improvements made to the boat, or equipment purchased, so long as it’s within the same calendar year of the vessel’s purchase. Bluewater President Jan Boone explains, “so don’t hold back on upgrading the electronics or installing a Seakeeper gyro with our service yard experts – these items can also be written off with the purchase of your next boat.”
One important feature of the bonus depreciation write-off rule is that it is not limited to the taxable income of the purchasing entity. So, if properly structured, a buyer may generate a deductible loss from their flow-through charter entity (in the year of a boat purchase) that can be used to directly offset ordinary taxable income they have from other sources.
A Recap of the New Tax Provisions for Boat Buyers
- To qualify, the boat owner must be an entity
- New provisions apply to new & pre-owned purchases
- Write-off 100% of the purchase price with no limits
- New equipment & upgrades can be written off in the same year
- Write-off not limited to taxable income of entity
This is a very significant tax benefit, and the Bluewater team is here to help answer your questions related to the new provisions as you begin searching for your next new boat. Additionally, we urge you to consult with your own tax advisor to consider the complexities of your whole tax picture and the potential of this new tax benefit. Now it’s time to get informed and get shopping!
Very interesting. If I were to form an LLC for this purpose, transfer personal funds to the LLC, and then purchase a vessel–it would be deductible in the year of purchase? If the LLC has no income and generates a loss, would the loss pass through and provide a personal deduction against income?
We encourage everyone with questions to consult with their CPA or tax attorney on specific situations
i would like more information on the tax benefits of charter yacht ownership you mentioned.
This write off opportunity seems even better than the provisions of the Economic Recovery Act of 81 which were cancelled in 1986 leading to the demise of the US domestic yacht building industry….Irwin, Gulfstar, etc …there were more sailboats then than now. I was a yachtbroker in those Halcyon Days from 83, when high bracket taxpayers woke up to the opportunities presented by the ERA, for write offs though in those days 3 or 5 years were required instead of one now. Hopefully it wont take the boat buying public two years to become aware of these new provisions.
Thank you for publishing this…we all need to spread the word asp. Not just in the yachting community but accounting and banking , yacht finance, areas need to be brought up to speed.
Can you please tell me the exact name and section of this new tax law so my accountant will believe me.
Yes, we’ll follow up via email.
Can I get that same email?
Does this law apply to marina owners as well?
We strongly advise you to talk to your tax accountant or attorney.
The relevant Internal Revenue Code Section that was changed in the new tax law is Section 168(k), Bonus Depreciation.
Can you give me more specific information on this if we buy boat under LLC
Can I get the answer via email as well?
I meet with my accountant next week.
Thank you for the article! Really appreciate your efforts in informing us on up to date boating tax laws! Can you please send me an email with the exact name and section of this new tax law? Thank you kindly.
We strongly advise you to talk to your tax accountant or attorney.
The relevant Internal Revenue Code Section that was changed in the new tax law is Section 168(k), Bonus Depreciation.
def would like the info on this article. Looking to buy a boat for a charter agreement. Thanks
We strongly advise you to talk to your tax accountant or attorney.
The relevant Internal Revenue Code Section that was changed in the new tax law is Section 168(k), Bonus Depreciation.
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.
168(k) only applies to aircraft. Why do you think it applies to Yachts as well?
Mike, you are reading that incorrectly, the section certainly does NOT only apply to aircraft.
Amazing post, thanks for sharing this article. This will help to us and improve our knowledge.
This is a good article. Really appreciate your effort. Thanks for sharing!