Whether you already own a yacht or are considering the purchase of a yacht, it is important to keep in mind some tax considerations that you may be eligible for depending on how you use your yacht. Please note that this article is only applicable for US tax paying individuals and entities.
With the passage of the The Tax Cuts and Jobs Act (TCJA) in 2017, yacht owners ended up as one of the big beneficiaries of this tax reform. This short article will cover three main changes as a result of this legislation: bonus depreciation, deductions and expenses. For more information on any of the details in this article, please reach out to YachtLife, and we will be happy to put you in touch with a tax specialist that will be able to assist you further.
In order to take advantage of the changes brought about by the TCJA, the yacht must be used for “legitimate business purposes” and owned by a registered entity (LLC, partnership or corporation). This generally means that the yacht needs to be chartered at least 50% of the time it’s in use in order to meet the legitimate business purpose clause. If these thresholds are met, then the IRS considers the vessel as “listed” property and a business asset.
The TCJA increased the bonus depreciation of yachts from 50% to 100%, with no dollar limit. While the 100% bonus depreciation ended in 2022, owners are still able to write off 80% of the entire purchase price of the yacht in the year of purchase with no dollar limit. This rule applies to both new yachts and used yacht purchases.
Depending on your state of residence, you may also be eligible to deduct the state and local sales taxes paid on the purchase price of the vessel.
If your purchase was or will be financed, and you classify your yacht as a second home (to qualify it must have a sleeping berth, a galley, and a head), it may be possible to deduct the interest on the loan. Since the TCJA considers qualified vessels as “listed property”, the mortgage on your yacht could be viewed as a second home mortgage and would allow for a maximum deduction of $750,000.
Furthermore, if you charter out your yacht for more than 50% of its usage, you are able to deduct 50% of the expenses associated with the vessel, including fuel, maintenance, dockage fees, insurance, and repairs.
All of these changes can greatly benefit yacht owners and maximize ROI on your asset more quickly. In order to take advantage of these changes, you should consult a tax professional and ensure that precise records are kept.
And for any assistance in the purchase or charter of your yacht, one of our sales professionals will be here to assist you with whatever you need. We look forward to working with you.