Substantial Tax Savings Still Available to Boat Owners
Bluewater Yacht Sales Partner Dan Reitz sat down with Joy Bell, CPA, Senior Tax Director at RSM to discuss the possible tax benefits for boat buyers created by the Tax Cuts and Jobs Act of 2017.
President Trump signed a tax law at the end of 2017 that provided tax incentives across a number of industries, right?
Yes, the tax law was initially passed in December, 2017, but it took until January, 2019 for the regulations to be finalized.
What provisions are of greatest interest for boat buyers?
The law expanded an existing bonus depreciation write-off, which had previously applied only to new boat purchases and provided for a 50% deduction in the first year. Beginning September 27, 2017, buyers of new and used boats can write off 100% of the purchase price of their boat in the year it is acquired.
What are the qualifications for the purchase, and the boat’s usage?
The boat must be purchased by a business entity (sole proprietorship, LLC, S Corp, etc.) and must be used for a legitimate trade or business purpose. Examples would be buyers who charter their boat, use it to commercial fish, or otherwise use it as part of a business enterprise. It’s important the company have revenues from outside sources, carry on advertising and other business activities in order to demonstrate to the IRS that it is a legitimate business, and not just a hobby.
What about boat buyers who use their boat for a combination of business and personal activities?
The buyer would keep a log of their activities and segregate the business transactions from the personal ones throughout the year. They would then be allowed to deduct a pro-rated portion of the bonus depreciation, based on the business ratio determined.
Are there dollar limits on the deductions that can be taken in a single year?
There are no limits incorporated into the law. However, buyers should consider their whole tax situation and consult closely with their tax advisor in planning the transaction and its tax impact. It’s important to avoid any unintended consequences on their personal tax return and to maximize the write-off at higher tax rates. In some cases, a buyer may elect to deduct regular depreciation instead of the bonus depreciation in the acquisition year, depending on the rest of their personal tax picture.
How long is the bonus depreciation deduction available?
The law provides for 100% bonus depreciation through the end of 2022. Starting in 2023, the deprecation percentage phases down through 2026.
