Tax Advantages of Charter Boat Ownership
Chartering your boat in partnership with BUKU helps you qualify for major tax advantages.
It is said that two things in life are certain: there’s no escaping death or the tax man. However, thanks to The Tax Cuts and Jobs Act of 2017 (TCJA), you can certainly ease off the pressure of the latter thanks to a variety of lucrative provisions for boat owners.
And one scenario in particular that the Act pays a great deal of favor to is owning a boat for charter use under a registered business - one of several ways that allow you to legally write off various costs of ownership, thereby reducing your tax burden substantially. In this article, we’ll answer a few questions that may provide a little more insight into the benefits of these tax advantages, and how you can qualify.
What is The Tax Cuts and Jobs Act of 2017 (TCJA)?
The Act is an advantageous tax reform bill that included beneficial provisions for boat and yacht ownership, especially those that are purchased and used for legitimate business purposes where the IRS has designated a category of business assets known as “listed property”. The new bill has in effect amended the IRS codes surrounding deductions, bonus depreciation and expensing. One of the noteworthy changes in the tax code is that it applies not only to new boats, but also to used boats such as brokerage or charter vessels.
How do I qualify for these benefits?
To qualify, the buyer (or owner) must be an entity such as a corporation, partnership or LLC. It’s always better, however, to own the vessel through an LLC as it reduces personal liability, and it’s the smart thing to do if running it as a charter business as the tax benefits will flow directly through to you. One key criteria that the IRS looks out for is that you’ll need to show active participation in the business in order to qualify.
What is the requirement for active participation, and how do I qualify?
The most commonly used test by the IRS is that the owner does at least 100 hours of participation (and more than any other person involved in the business). And although this may seem like a lot, it’s easier than you think. To make it even easier, BUKU is there to help you achieve these goals by assisting you with the following various ways to clock in the hours, such as:
Attending trade shows like the Annapolis Boat Show where the vessel is promoted for charter, which can easily log you up to 75 hours.
Marketing your boat on our online charter platform, which includes consultations, staging and photography shoots.
Doing one familiarization trip a year, allowing you to log around 50-100 hours by getting to know the area in which the boat will be used for charters.
Performing routine annual technical inspections, which including the time travelling to the location of the vessel can log a minimum of 50 to 75 hours at the very least.
What about triggering an IRS audit? As with all large tax deductions, there’s always the chance of an audit being triggered. However, if proper records are kept and you actively participate with the intent of making a profit (as outlined above), then you should satisfy any scrutiny with ease. As personal circumstances differ from person to person, it’s always best to consult your CPA regarding audits.
How can BUKU help me qualify for tax deductions? You’ll need to show genuine effort at making a profit - and with BUKU’s extensive range of charter-related services it’s never been easier to provide exciting on-demand water experiences to paying customers. By listing your boat with BUKU’s safe and secure online booking platform, you can charter your boat (acting as the Captain* or by partnering with one of our certified Captains if you’re not available). Each premium listing includes free professional staging and photography to get vessels ready for charter - and boat owners get to control their time and decide when their boat is available. *You’ll need a U.S. Coast Guard license to take out up to six paying passengers, and your boat insurance may need to be increased if you plan on using it for commercial purposes.
What deductions could I qualify for? The cost of ownership has always been the biggest concern for boat owners or potential buyers. By properly making use of all the tax advantages available to boat owners, you can write off depreciation, maintenance, boat equipment purchases, repairs and upgrades, fuel and mooring / winter storage costs and insurance - provided you keep detailed records of every expense as well as the amount of income you receive from providing charter experiences with BUKU.
Can I still use my boat in my private capacity? Of course! However, you won’t be able to write off expenses when you’re pleasure boating. In order to qualify for deductions, you’ll have to use your boat for business more than 50% of the time - and your deductions are based on the percentage of time the boat is used for business. For example, if you charter out the boat 50% of the time, you’ll qualify for a 50% deduction.
Let BUKU make it happen for you If you’ve ever considered buying a boat, or if you currently own one and are interested in turning it into a sustainable additional income stream, BUKU is here to assist you in turning that into a reality. Contact us today for a free consultation and let’s discuss your future in charter boating.