NEW TAX LAW CONTINUES TO SUBSTANTIALLY BENEFIT YACHT OWNERS
HMY Yacht Sales is always on the lookout for ways to help our customers. Here are a few things to think about if you’re considering the details and tax benefits of yacht ownership. This article is not considered to be official tax advice. Please consult your tax advisor to ensure you’re maximizing these financial benefits.
The Tax Cuts and Jobs Act of 2017 (TCJA)—a sweeping tax reform—included new beneficial provisions that proved quite lucrative for yacht owners and also yachts for charter that are purchased through and used for legitimate business purposes.
The new bill amended the IRS codes around bonus depreciation, deductions, and expensing and is in effect through 2022. And one of the biggest changes to the tax code is that, in addition to applying to new boats, the new law now also applies to used boats, meaning brokerage and charter vessels also qualify.
To qualify for these benefits, the buyer must be an entity—corporation, partnership, or LLC—that will use the vessel for a legitimate business purpose, which will put the owner in a category of business assets the IRS has designated “listed property.” A good example of this is purchasing a yacht and using it for charter.
As the three-year anniversary of passage approaches, it’s the right time to revisit the TCJA (and speak with your tax advisor) to make sure you’re aware of every possible yacht-related tax advantage and benefit that may be available to you.
One of the biggest changes under the TCJA—it “increased the bonus depreciation percentage from 50% to 100% for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023,” per the IRS—meant that 100% of the purchase price can potentially be written off as bonus depreciation in the year of the purchase if all requirements are met. And there is no dollar limit to the purchase price.
Depending on your personal situation and where you live, you may be able to deduct the sales tax you pay on your boat purchase, and, when itemizing, possibly even be able to choose to deduct those state and local sales taxes instead of deducting state and local income taxes.
Also, with yachts now able to be classified as second homes under the TCJA, you may be able to deduct the interest on your loan under the mortgage interest deduction portion of the new code, which allows homeowners to deduct interest on loans for their first and second homes.
In order to qualify as a home, the boat must have a head, sleeping berth, and a galley.
Previously, this deduction let taxpayers write off interest on loan balances up to $1 million, but the new tax law reduced that amount to $750,000.
To deduct any costs associated with listed property—such as fuel, maintenance, mooring fees, insurance, supplies, storage, and repairs—you must use it more than 50% of the time for business and your deductions are based on the percentage of boat use that’s business-related. So, if you charter out the boat 50% of the time, you can deduct 50% of the expenses.
If you’ve ever considered buying a yacht for a business or purchasing a yacht to be placed in a charter fleet, now is the time to take advantage of this new legislative benefit, as the window on the TCJA is closing.
Most yacht owners average 8-10 weeks of personal use a year. Why not put your investment to work in the idle time and help offset operating expenses? When you also consider what might be achieved from the tax standpoint, it makes for an ideal ownership profile.
For more information on locating the perfect yacht for your business purposes, talk to an HMY Sales Professional today— 561-262-4132. HMY has 12 marina office locations from Charleston, SC to Ocean Reef, FL.
NOTE: This article is not considered to be official tax advice. Please consult your tax advisor to ensure you’re maximizing these financial benefits.