Whether you already own a yacht or are considering the purchase of a yacht, it is important to consider some tax laws that you may be responsible for, depending on how you use your yacht. Please note: This article is only applicable for U.S. tax-paying individuals and entities. 

Yacht owners ended up being one of the big beneficiaries of The Tax Cuts and Jobs Act (TCJA) of 2017. There were three main changes as a result of this legislation: bonus depreciation, deductions, and expenses. 

Does Your Yacht Qualify For Special Tax Treatment?

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 (an LLC, partnership, or corporation). This generally means 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, the IRS considers the vessel as “listed” property and a business asset.

Bonus Depreciation

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.

Deductions

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, it may be possible to deduct the interest on the loan. To qualify as a second home, the yacht must have a sleeping berth, a galley, and a head.

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.

Expenses

If you charter out your yacht for more than 50% of its usage, under U.S. tax laws, 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. 

For more information on any of these tax laws, please reach out to YachtLife. We will be happy to put you in touch with a tax specialist who will be able to assist you further. And for any assistance in the purchase or charter of your yacht, one of our sales professionals will be here to help you with whatever you need. We look forward to working with you.