Staying informed about tax codes and depreciation strategies is essential for reducing your tax burden and maximizing the return on investment (ROI) for your yacht. Navigating these tax advantages can be complex, so consulting with an experienced tax professional, particularly one familiar with IRS Section 179 and bonus depreciation, is highly recommended. In the meantime, here’s an overview of key tax strategies to consider throughout your yacht ownership journey.

Overview of IRS Section 179: Immediate Deductions

Section 179 of the U.S. Internal Revenue Code allows business owners to immediately deduct the cost of qualifying depreciable assets, including equipment, software, and certain vehicles, in the year they are placed into service. This helps minimize tax liability upfront rather than spreading depreciation over several years. For 2024, the maximum deduction has increased to $1,220,000, with a phase-out beginning at $3,050,000.

How Yacht Owners Benefit from Section 179

Traditional depreciation schedules provide smaller deductions over a prolonged period. For yacht owners, Section 179 offers a way to significantly reduce tax liability with an upfront deduction. This is particularly advantageous for those who operate their yachts as part of a charter business, which qualifies the vessel as a business asset. To be eligible, your yacht must be used for business purposes more than 50% of the time. Accurate records of usage are essential to ensure compliance.

Understanding Section 179 Rules for Yacht Owners

Under Section 179, the maximum deduction for assets placed in service during 2024 is $1,220,000, with a phase-out threshold starting at $3,050,000. The deduction amount is proportional to the percentage of business use. For example, if your yacht is used 70% for business, 70% of its cost may qualify for the deduction. Additionally, upgrades or equipment added to your yacht can also be deductible if they meet IRS requirements.

Bonus Depreciation: A Limited-Time Opportunity

The Tax Cuts and Jobs Act of 2017 introduced 100% bonus depreciation, allowing taxpayers to deduct the full cost of qualifying new and used assets in the year they are placed into service. However, this benefit began phasing out after 2022:

• 2023: 80% bonus depreciation

• 2024: 60% bonus depreciation

• 2025: 40% bonus depreciation

• 2026: 20% bonus depreciation

• 2027: 0% bonus depreciation

Additional Tax Considerations for Yacht Owners

The Tax Cuts and Jobs Act of 2017 provides bonus depreciation for new and used equipment purchases. Yacht purchases made before January 1, 2023, may qualify for a 100% bonus depreciation benefit. Subsequent years will see a gradual reduction to 80%, 60%, 40%, 20%, and 0%, respectively. Yachts can also be classified as second homes under the TCJA, allowing you to deduct the loan interest. To qualify, the vessel must have a galley, sleeping berth, and head. Depending on usage and location, you may also deduct the sales tax on your yacht purchase.

Accurate Record-Keeping

Maintaining detailed records of your yacht's business use is crucial. The IRS requires that the yacht be used for business purposes more than 50% of the time to qualify for these deductions. Accurate logs and documentation can substantiate your claims in the event of an audit.

In conclusion, while these tax benefits are advantageous for small business owners, they are equally beneficial for all yacht owners, especially those who choose to charter. Precise record-keeping and professional tax guidance empower you to leverage current tax laws to your greatest advantage. Whether you’re considering your first yacht purchase or planning to upgrade, VOYAGER is here to guide you every step of the way.

First-Year Deduction Calculator

Designed to help yacht buyers estimate their potential tax savings under the current Section 179 and bonus depreciation rules. By entering your yacht's purchase price and selecting your tax bracket, you can quickly see the estimated deductions and tax savings for the first year. This tool is ideal for anyone exploring the financial benefits of yacht ownership, including buyers planning to use their vessel in a business capacity or charter program.