Yacht Ownership’s Tax Benefits: IRS 179 Deduction & Accelerated Depreciation
As the owner of a motor yacht, superyacht, sportfishing yacht, or center console, there may be certain tax benefits available to you.
Staying up-to-date with tax codes and depreciation information can help you reduce your tax burden and maximize the ROI of your yacht. Of course, as with all aspects of tax code, the details can become a bit complex, so be sure to discuss the following factors with a trusted tax lawyer who’s well-versed in the nuances of the IRS 179 deduction. In the meantime, here are a few key factors to bear in mind throughout the year.
IRS Section 179: An Overview
Under Section 179 of the U.S. internal revenue code, business owners can take an immediate deduction for an expense related to depreciable assets. This applies to equipment, software, and vehicles. In doing so, they can limit their tax liability instead of depreciating the asset over time. The maximum deduction has been adjusted for inflation, reaching $1,160,000 for 2023.
How Does This Benefit Yacht Owners?
Depreciating your yacht would allow for smaller deductions to be made over a period of time. For individuals who have invested in a luxury vessel, it often makes sense to pursue the greatest ROI as soon as possible, which is where Section 179 comes in. By leveraging this tax code, you can reduce your tax liability for an immediate break.
If you own a yacht or superyacht, chartering it will allow you to declare it as a personal business, which is required for Section 179 eligibility. There are certain rules to consider, however.
Section 179 Rules
As mentioned above, the maximum deduction for Section 179 assets purchased within 2023 is $1,160,000. This limit is reduced by the amount the purchased property costs exceeds $2,890,000. For a yacht to be eligible, it must be used for business more than 50% of the time. Multiplying the cost of the asset by the percentage of business use will provide a quick estimate of the amount eligible for Section 179.
It’s also possible for individual features or pieces of equipment on your yacht to be deductible. For instance, if you’ve made improvements or additions, they may qualify for deduction under Section 179. Yet, their price must fall within the specified ranges.
Additional Tax Considerations for Yacht Owners
The Tax Cuts and Jobs Act of 2017 (TCJA) gives businesses the bonus depreciation benefit for both new and used equipment purchases if it is the first time the purchasing business will use the equipment. When the TCJA went into effect, it increased the bonus depreciation percentage from 50% to 100% for eligible property purchased after September 17, 2017, but before January 1, 2023. Purchases made after January 1, 2023, may be eligible to receive a bonus depreciation percentage of 80%, and subsequently will ramp down to 60% in 2024, 40% in 2025, 20% in 2026, and 0% beginning in 2027. This offers businesses a greater advantage to make these purchases sooner rather than later to get the highest bonus depreciation benefit. The TCJA also allows yachts to be classified as second homes, which could allow you to deduct your loan under the code’s mortgage interest deduction portion. To qualify, the vessel must have a galley, sleeping berth, and head.
Depending on how you use your yacht and where you live, it could also be possible to deduct the sales tax on your yacht purchase.
Although these tax benefits can help small business owners maximize the ROI of their new assets quickly, the same advantages can be realized by most owners of yachts and superyachts who choose to charter. Keeping precise records and enlisting the help of a tax professional will allow you to use current tax laws to your greatest advantage.
NOTE: This article is not considered to be official tax advice. Please consult your tax advisor to ensure you’re maximizing these financial benefits.
To start your superyacht search and take advantage of deductions for tax year 2022, visit HMY Superyachts or talk to an HMY Sales Professional today — 561-206-3300.