Diksia.com - Owning a yacht can be a dream come true for many people, but it also comes with a hefty price tag and a lot of expenses. However, there are some tax advantages that can make yacht ownership more affordable and rewarding. In this article, we will explore the tax benefits and deductions available for yacht owners and buyers, such as Section 179, bonus depreciation, and charitable donations. We will also explain the rules and requirements for each option, and how to maximize your tax savings.
Section 179: An Immediate Deduction for Yacht Purchase
Section 179 of the Internal Revenue Code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. This applies to vehicles, including yachts, that are used for business purposes more than 50% of the time. The maximum deduction for 2023 is $1,160,000, reduced by the amount the purchased property costs exceeds $2,890,0001.
To claim this deduction, you need to use your yacht for business purposes more than 50% of the time. This can include chartering, renting, or using it for meetings, entertainment, or transportation. You also need to keep a log of your business and personal use, and document the expenses related to your yacht. You can multiply the cost of your yacht by the percentage of business use to get the amount eligible for Section 1792.
Section 179 can help you reduce your taxable income and lower your tax liability in the year of purchase. However, you need to be aware of the recapture rules. If you sell or stop using your yacht for business purposes within five years, you may have to pay back some or all of the deduction you claimed3.
Bonus Depreciation: An Additional Deduction for Yacht Purchase
Bonus depreciation is another tax benefit that allows businesses to deduct a certain percentage of the cost of qualifying property in the year of purchase. Unlike Section 179, bonus depreciation does not have a dollar limit or a business use requirement. However, it only applies to new or used property that is placed in service for the first time by the business4.
The Tax Cuts and Jobs Act of 2017 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 20274.
Bonus depreciation can be combined with Section 179 to maximize your tax savings. For example, if you buy a yacht for $2 million and use it for business purposes 60% of the time, you can deduct $1.2 million under Section 179, and then deduct another $800,000 under bonus depreciation, resulting in a total deduction of $2 million in the year of purchase2.
Charitable Donations: A Deduction for Giving Away Your Yacht
If you want to get rid of your yacht and support a good cause at the same time, you may consider donating it to a qualified charity. By doing so, you can claim a tax deduction for the fair market value of your yacht, as long as you meet certain conditions.
First, you need to donate your yacht to a charity that is recognized by the IRS as a 501©(3) organization. You also need to obtain a written acknowledgment from the charity that includes the name of the organization, the date and location of the donation, a description of the yacht, and a statement of whether you received any goods or services in exchange for the donation.
Second, you need to determine the fair market value of your yacht. This is the price that a willing buyer and a willing seller would agree on in an arm’s length transaction. You can use various sources to estimate the value, such as sales listings, appraisals, or guides. However, you need to make sure that the value is realistic and supported by evidence.
Third, you need to report the donation on your tax return. If the value of your yacht is more than $500, you need to file Form 8283, Noncash Charitable Contributions, and attach it to your return. If the value is more than $5,000, you also need to obtain a qualified appraisal and attach a copy of it to your return. If the value is more than $500,000, you need to include the appraisal with your return.
Charitable donations can help you reduce your taxable income and support a worthy cause. However, you need to be careful about the timing and the documentation of your donation, as the IRS may scrutinize your claim and disallow it if you fail to meet the requirements.
Conclusion: How to Make the Most of Your Yacht Tax Deductions
Owning a yacht can be a rewarding experience, but it can also be a costly one. Fortunately, there are some tax benefits and deductions that can help you offset some of the expenses and lower your tax bill. These include Section 179, bonus depreciation, and charitable donations. However, each option has its own rules and requirements, and you need to follow them carefully to avoid any tax problems. To make the most of your yacht tax deductions, you should consult a tax professional who can advise you on the best strategy for your situation.
We hope you found this article helpful and informative. If you have any questions or comments, please feel free to contact us. We would love to hear from you. Thank you for reading and happy sailing!
