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Yachts and Taxes: Everything You Need to Know

7 minute read

Those who are seeking freedom, pleasure, or adventure often dream of owning a boat. Unfortunately, the cost of boat ownership is financially draining due to expenses such as storage, registration, insurance, fuel, and maintenance. However, there is some good news for those who want to set sail.

Can You Write Off a Boat on Your Taxes?

The good news is that there are some tax write-offs available for boats used for business and even pleasure that can offset some of the expenses. And yes, this includes yachts and tax deductions.

What Taxes can You Expect When You Buy a Yacht?

The bad news is that yachts are subject to taxes. These taxes go towards waterway upkeep, on-water services, and boat facilities. Most of the taxes will be state-based, so you should find a planner who is versed in state and local planning as well. There are 4 common taxes that yacht owners have to pay.

Sales tax is paid at the time of purchase. This tax is based either on a percentage applied to a portion of the purchase price or a flat rate with a cap. Yacht owners may also be subject to a local sales tax. The sales and local tax are dependent upon the state, county, and municipality that you made the purchase.

If you don’t pay sales tax on your yacht at the time of purchase, you probably will have to pay a use tax in the state where you will be storing your boat. Use tax is applied to only a certain portion of the yacht’s purchase price. If the sales tax rate is higher in the state you purchased the yacht than the use tax in the state where the boat is being stored and used, then you will probably want to opt to pay the use tax and not the sales tax.

Personal Property Taxes

Many states levy a tax on personal property such as cars, and that could be extended to your boat! Depending on the state the yacht is based out of, you may have to pay personal property taxes on a yearly basis.

Property Taxes

There’s even a property tax on the boat slip. If you own a boat slip, the slip is assessed by the local municipality. If you are leasing a boat slip, property taxes are usually included in the monthly lease.

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What is a Yacht Tax Write-Off?

While there are taxes every yacht owner has to pay, the flipside is that there are some tax deductions that can save yacht owners money on their taxes. The deductions depend on how the yacht is being used.

Business Use

There are some substantial tax deductions if you are using your yacht for a legitimate business purpose such as chartering or for sightseeing tours. To qualify for business use, the yacht must be used for business purposes at least 50% of the time.

Purchase Price Expense Deduction

Under Section 179 of the Internal Revenue Code, the Purchase Price Expense Deduction allows an entity, either a corporation, partnership, or LLC, a one-time deduction of 100% of the purchase price of the yacht, up to a maximum deduction of $500,000, during the year of purchase. However, the benefit is reduced if the purchase price is more than $2 million. The yacht can be new or pre-owned. Equipment upgrades can be written off as well if they are within the same year the yacht was purchased.

Business Expense Deductions

If you are earning income off of your yacht at least 50% of the time, then you can deduct business expenses from your taxes. Some of the business expenses that can be deducted include equipment, slip costs, fuel, maintenance, crew salaries, interest, property tax, insurance, and depreciation. Thanks to the Tax Cuts and Jobs Act, entertainment is no longer deductible.

Home Office Deduction

This deduction is frequently overlooked. If your boat is used as a part-time office, you may also qualify for the home office deduction. The activities in this yacht office must be business-related and occupants must have business discussions while aboard the yacht.

Business Commuting

If you use your boat for commuting to and from work, you also may qualify for tax deductions. Again, you must use the yacht at least 50% of the time for business transportation. The deductions for business commuting include storage, crew salaries, depreciation, repairs, fuel, and insurance.

Depreciation

As mentioned earlier, depreciation can be a tax deduction if the yacht is used in business. A bonus depreciation deduction can be taken in the year the yacht was purchased. Depreciation, in this case, is 100% of the purchase price., but this is only available until the end of 2022. Beginning in 2023, the amount of bonus depreciation will be 80% of the amount over 0,000 after section 179 . The adjusted cost basis of the yacht can be depreciated over the period of 10 years. To determine the cost basis, you deduct the Section 179 expense deduction and the bonus depreciation deduction from the purchase price. Cost basis is the balance.

What are the Tax Advantages of Living on a Boat or Yacht?

Some individuals actually live on their yachts. There are even tax advantages to using your yacht as a primary residence or as a second home.

Is Boat Loan Interest Tax Deductible?

Deducting the interest you pay on your boat loan, similar to mortgage interest, is the biggest tax deduction for recreational boating. To qualify for this deduction, the yacht must have a toilet, cooking facilities, and a sleeping area. The second home mortgage interest deduction has a cap of $750,000.

If you rent your boat out, you need to stay on the boat for either at least 14 nights during the tax year or 10% of the number of days the boat was rented to take advantage of the tax deduction as a second home.

There’s another tax advantage to living on a yacht. If your yacht is listed as your primary residence and you happen to sell it at a profit, you could qualify for a capital gains exclusion which would result in a huge savings on your taxes.

Is There any Deduction for Donating a Yacht to Charity?

If you are in a position to donate your yacht to charity, then the IRS offers a deduction for this generous act. The market value of the yacht on the day it is donated can be deducted from your taxes.

Getting the Most Out of Yacht Tax Deductions

If you are a yacht owner and are looking to save on taxes, deductions can be a powerful strategy. Good tax planners, however, use a variety of strategies each year to save money. Tools such as Corvee tax planning software help taxpayers quickly find the strategies available to them. Request a demo today.

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MAKING A MILLENNIAL MILLIONAIRE

Nick Burgess
Feb 24, 2023

The Ultimate Guide to Yacht Tax Deductions

The following article is for educational and entertainment purposes only, and should not be considered advice. For individual situations, please contact a licensed tax professional. Some links below may be affiliate links, which may bring in a small commission for the site at no cost to you.

Ahoy, mateys! Have you foregone the life of owning a second home in favor of the biggest boat you can find? Are you part of the elite group of yacht owners wondering if you can score a tax deduction for your vessel? Well, shiver me timbers, the answer is "aye, it's possible!" But don't hoist the Jolly Roger just yet, there be a few rules and regulations to navigate if you don't want the IRS coming by to commandeer your vessel.

Quick note: none of this is tax advice. The world of boat ownership and seacraft taxation is immense, and requires a specific skill set to accurately navigate (especially with recent changes to the tax code and tax cuts). If you're interested in a yacht purchase and you don't know where to start with taxes, contact a licensed tax advisor. You can also contact an equipment finance specialist who knows this stuff inside and out. With that, let's get into the world of boat tax!

Business Use Tax Code

First off, let's set the scene. You're lounging on the deck of your yacht, sipping a Mai Tai, and wondering if you can write off the cost of your fancy floating palace. The answer, like most things in the world of tax law, is "it depends." If you use your yacht for business purposes, such as hosting client meetings or an entertainment facility for colleagues, you may be able to claim certain expenses as tax deductions since it's a legitimate business asset.

But before you start inviting your entire office out for a day of sun and sea, you need to make sure you're following the IRS guidelines. For starters, you'll need to be able to prove that your yacht is a legitimate business expense used for a legitimate business purpose, and not just a luxurious toy meant for personal use. This means keeping meticulous records of your yacht-related expenses and demonstrating that the boat is used primarily for business purposes.

So, what exactly can you deduct? Well, any expenses directly related to the operation and maintenance of the yacht are fair game. This includes things like fuel, insurance, repairs, and even the cost of hiring a captain or crew. But don't even think about trying to write off that gold-plated anchor or the crystal chandelier in the master suite. The IRS is onto your sneaky ways and won't let you claim frivolous expenses as deductions.

Finally, let's chat boat slips. You need somewhere to park your yacht, and that incurs slip fees, as well as property taxes and mooring fees. Generally, all of these fees are rolled into one lump-sum, which should be part of your deduction against the boat if you're truly using the yacht for business purposes.

Deprecation Rules

When you think about a toy for business use, you usually come across the "Section 179 Deduction" in the IRS tax code. This is generally the holy grail of the "maximum deduction life" that small business YouTubers are always talking about. That's why Biaheza owns a G-Wagon and a Tesla! But there are other things to consider when you take your deduction to the salty seas.

Essentially, the 179 deduction is a sought-after part of the internal revenue code for small business owners with business transportation needs. If you have a vehicle where you can claim business expenses for over 50% of the vehicles use, you now open yourself up to significant tax benefits and tax breaks. This essentially invites things like deprecation tax advantages and the ability to claim tax benefits on the adjusted cost basis of your yacht (since it's technically the purchase of business equipment and should not be a personal asset). However, under section 179(b)(1), this deduction is capped at $1,160,000 per year (as of 2023) . There's also a significant ramp down period when considering bonus depreciation deduction, with the ramp down decreasing in set percentages through your depreciation period. Again, this is why accountants and equipment financiers get paid so much money: they know this stuff. Reach out to a certified financial advisor before you start playing around with your own potential tax deductions.

The other side of this coin is the hobby loss rule, also known as Section 183 . The hobby loss rule means that losses you incur from not-for-profit activities (like fuel costs from boating with your grandchildren or hiding your mistress) can be used to offset for-profit revenue generated from the boat (think starting your own charter business, employee entertainment facilities, or business travel rental revenue). However, you cannot run at a loss for more than 2 out of 5 years on a rolling period. You actually have to make money with your boat, rather than burning a bunch of fuel and then faking your own death.

What About A Boat As a Second Home?

If you want to straddle the line between rockstar and sensible, you could use your yacht as vacation homes. This would also allow you to claim second home tax qualification, assuming your boat meets the minimum qualification of having at least one bedroom, a galley and a toilet.

Some enterprising business owners will also rent out their boats for extra income, whether that's for vacation goers or for a charter management program. If you decide to do this, you must yourself live in the boat for a minimum of 15 days per year, or 10% of the number of days that you rent your boat out, whichever is greater. This allows you to keep your second home deduction, while generating a bit of cash flow because you're an experienced pirate with luxury taste.

Non-Business Use

Now, let's be real here. Unless you're the CEO of a major corporation, or a part of a select group of business owners, it's unlikely that you'll be able to claim your yacht as a legitimate business expense. So, for the rest of us landlubbers, owning a yacht is just an expensive hobby. But fear not, there are still some ways to make your love of the sea work in your favor come tax time.

For starters, you can always donate your yacht to charity. That's right, instead of selling it for a fraction of what you paid, you can donate it to a qualified charitable organization and claim a tax deduction for the fair market value of the boat. Not only will you be doing a good deed, but you'll also get a nice tax break to boot.

You also might be someone that owns a boat to actually get to work. That's right: some people have it so good that they use their boat as a car. Well good news for you, you seafaring nine-to-fiver. You can deduct your mileage as a business commuter expense, the same way that the rest of us do with a car. You just get to enjoy the fresh air more than we do while we're spilling our morning Starbucks on ourselves while we take a Zoom call from the driver's seat.

But let's be honest, most of us aren't going to be renting out our yachts anytime soon. So, what's the bottom line? Unless you're a billionaire, owning a yacht is probably not going to help you save on your taxes. But that doesn't mean you can't enjoy the perks of yacht ownership without breaking the bank.

For example, instead of buying your own yacht, you could always join a yacht club. Sure, you won't be able to customize the boat to your every whim, but you'll still get to enjoy all the benefits of yacht ownership without the hefty price tag. And who knows, you might even meet some fellow yacht enthusiasts who can help you navigate the treacherous waters of tax deductions.

In conclusion, owning a yacht may not be the most financially savvy move, but it sure is a heck of a lot of fun.

And hey, if you can find a way to make your yacht work for you come tax time, all the better. Just remember to keep those receipts, document your business-related expenses, and consult with a tax professional to make sure you're following all the rules and regulations.

At the end of the day, whether you're cruising the open seas or just dreaming of the yacht life, there's one thing we can all agree on: taxes are no fun. But if you can find a way to turn your yacht into a legitimate business expense, you might just be able to soften the blow come tax season.

So, grab your captain's hat and your SPF 50 sunscreen, and set sail for the horizon. Who knows, you might just find your fortune on the high seas...or at least a few extra deductions on your tax return.

Tax Rules That Allow Tax Deductions for Your Yacht

Qualifying for tax deductions on a yacht or other luxury boat requires tax knowledge.

First, you need to use the yacht more than 50 percent for business transportation.

Once you meet the “more than 50 percent” test, your potential tax deductions include fuel costs, insurance, repairs, dock or slip fees, caretakers’ salaries, hurricane storage, and depreciation (including Section 179)—all of which are limited by tax rules on luxury water transportation.

Second, the yacht is an entertainment facility. Tax law treats entertainment facilities harshly, so you need to seriously consider providing no business entertainment on this yacht. This should be easy to do because business entertainment is no longer deductible, thanks to the Tax Cuts and Jobs Act (TCJA).

Use Your Yacht More Than 50 Percent for Business Travel

Tax law gives you two reasons to use your yacht more than 50 percent for business travel:

Possible escape from the entertainment facility rules (discussed later)
Escape from the penalties that apply to listed property

Tax law classifies yachts and other pleasure boats as “listed property.”1 Therefore, you must use your yacht more than 50 percent for business purposes in order to:

Qualify for accelerated depreciation
Qualify for bonus depreciation
Avoid depreciation recapture in later years
Qualify for Section 179 expensing and avoid recapture in later years

Say Goodbye to the Tax Law Entertainment Facility “Punishment”

Before the TCJA, even if you used your yacht 100 percent for business, one business entertainment use could sink your deductions.

But the TCJA did away with business entertainment tax deductions. That’s bad news, but not for the yacht where even a single business entertainment could have destroyed the deduction.

Planning note. The IRS in its regulations stated, “A facility used only incidentally during a taxable year in connection with entertainment, if such use is insubstantial, will not be considered a ‘facility used in connection with entertainment’ for purposes of this section or for purposes of the recordkeeping requirements of Section 274(d).”

Tax Deductions for the Business Transportation Yacht

The entertainment facility “punishment” does not apply to a yacht used solely for business travel.

Obviously, if the yacht is used solely for business travel, you don’t have any entertainment that triggers the entertainment facility rules.

For example, you could have a business office on an island and a business office on the mainland—say, in the Seattle, Washington, area—that would require water transportation for you to get to or from the island. You could do this on a yacht.

More Than 50 Percent

Here’s another real-life example. There’s a general insurance agent in Florida who takes his agents to three business meetings a year. One business meeting is in Bermuda, and the other two business meetings are in St. Thomas.

He gathers his agents—he’s a general agent, so he’s got some 25 other agents working for him—and piles them on his yacht and takes them to the meetings, which occur on land at a hotel. On these trips, he uses his yacht for business transportation. He never uses the yacht for business entertainment.

At the end of a typical year, he has 80 percent business use and 20 percent personal use of the yacht. He may deduct all of his yacht costs for the 80 percent business use, subject to the luxury water transportation limits discussed later in this article.

Possible Entertainment Facility Escape with Business Transportation

In 1978, lawmakers enacted the killer entertainment facility rules. Even though that’s a long time ago, there has not been much action in the courts or at the IRS on this subject.

There are a few cases that involve yachts. In one case, the court said:

The slightest use of a facility in connection with an activity which is of a type generally considered to constitute entertainment, amusement, or recreation operates under the text of section 274(a)(1)(B) to disallow any deduction as to that facility.

In another case, James Gordon argued that his boat was not an entertainment facility because he used it only incidentally during the year in connection with entertainment. He lost his deduction for the boat.

Fatal flaws. James Gordon and the others who lost their yacht tax deductions did not claim business transportation for their yachts. Had business transportation been part of the mix, the courts may have seen things differently.

IRS position. In TAM 9608004, the IRS ruled that the taxpayer who used his airplane 80 percent for business transportation and 20 percent for tax-deductible business hunting trips with customers could deduct 80 percent of his airplane.12 The one taint of entertainment did not hurt this taxpayer.

In this ruling, the IRS noted that the airplane fell under the non-deductible entertainment facility rules, but the IRS regulations contain a specific “carve-out” for business transportation. The IRS went on to note that an airplane used for both entertainment and business is deductible to the extent (not “if”) the airplane is used for business

transportation not related to entertainment.

Legislative history. Probably the best barometer is the legislative history behind the 1978 enactment of the killer entertainment facility rules, which says:

The Act provides that no deduction is allowed for any expenses paid or incurred with respect to a facility which is used in conjunction with an activity which is of a type generally considered to constitute entertainment, amusement, or recreation.

Generally, the term “facility” includes any item of real or personal property which is owned, rented, or used by a taxpayer in conjunction or connection with an entertainment activity. Thus, expenses incurred with regard to entertainment facilities which are disallowed include yachts, hunting lodges, fishing camps, swimming pools, tennis courts, and bowling alleys. Facilities also may include airplanes, automobiles, hotel suites, apartments, and houses (such as beach cottages and ski lodges) located in recreational areas. However, the deduction is not affected unless the property is used in connection with entertainment.

Expenses of an automobile or an airplane used on business trips will continue to be allowed.

. . . the disallowance rule does not apply to the extent allocable to that portion of the facility which otherwise qualifies as one which is not an entertainment facility, or to the extent that a facility, with respect to which expenses ordinarily would be denied as deductions, qualifies under one of the above exceptions. Similarly, expenses incurred

with respect to certain transportation facilities, for example, automobiles and airplanes, are allowable to the extent allocable to travel undertaken primarily for the furtherance of a trade or business even if the taxpayer engages in some entertainment activities during the business trip.

Recommendation—Plan A. Use the yacht only for business transportation and personal use. Do not use it for business entertainment. (The TCJA gives you the incentive to not use the yacht for business entertainment since you receive no deduction for such entertainment.)

Recommendation—Plan B. If Plan A is impossible and entertainment is part of the mix, hope that the IRS or a court will read the legislative history in a light favorable to your mixed use, as the IRS did for the airplane.

Tip for Plan B. When you have business and entertainment activities on the same day, try to ensure that the business part lasts longer than the entertainment part, so the day is obviously a business day. Alternatively, if entertainment time exceeds business time but the business time is a matter of consequence—for example, a contract signing—that day could be a business day. In short, try to arrange your activities so the law treats all days as business days.

Luxury Water Transportation Limits

Now that you have gone to the trouble to qualify your yacht for deduction, you face one final hurdle.

Tax law places a daily limit on deductions for business transportation by water. The luxury water limit is double the highest per diem for federal employees traveling in the United States.

The luxury water limits can change monthly. During 2020, the lowest luxury water travel limit was $760 a day and the highest was $988. Say that your yacht expenses exceed the daily limits and that you used your yacht 45 days for business transportation. At the lowest limit, your yacht deductions would be $34,200 (45 x $760). Not a bad payoff for a little tax knowledge.

If you are looking to deduct your yacht, make sure that you use it more than 50 percent for transportation and don’t use it for business entertainment.

Since the TCJA does not allow a deduction for business entertainment, your incentive is to not use your yacht for this purpose.

Once you qualify your yacht as a mode of business transportation, you next need to consider how the luxury water travel rules will limit your deduction.

My name is Christopher Ragain, I am the founder of Tax Planner Pro. I love helping small business owners find creative and legal ways to beat the TaxMan. My team and I love to write and you can find all of our insights on this blog!

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Qualifying for tax deductions on a yacht or other luxury boat requires tax knowledge.

First, you need to use the yacht more than 50 percent for business transportation.

Use Your Yacht More Than 50 Percent for Business Travel

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Tax strategies for yacht buyers

Are you an american taxpayer we will share several recommendations with you.

If you are an American tax-payer, you’ve probably stumbled upon the words “active yacht ownership” or "boat as a business". This post was written to help you better understand what this concept is and how it may apply to your situation. Additionally, there are other considerations you may want to discuss with your financial advisors outside of an “active business”.

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What does yacht ownership have to do with tax deductions.

We point out and discuss the possible merits and challenges associated with the tax implications of owning a yacht.
The phrase “active yacht ownership” refers to the business strategy of purchasing a yacht and placing it into a charter program to generate income
Section 183 of the IRS code, also known as the “hobby loss rule”, limits the losses that can be deducted from income that are attributable to hobbies and other not-for-profit activities.

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In this edition of our yacht sales webinar, the Navigare team discusses tax planning for yacht buyers looking to place their yacht in charter with Giselle Alexander. Giselle Alexander is a Certified Tax Law Specialist, a CPA, and holds a Masters in Law in Taxation. After transferring from a Big-4 accounting firm, she transitioned into tax controversy. As a member of the prevailing legal team for the landmark case, Kline vs Commissioner, Giselle Alexander is at the cutting edge of the IRS rules for the business of placing yachts in a charter fleet and running an active business. Listen in to hear her recommendations and hear her answer to your most common questions!

While we point out and discuss the possible merits and challenges associated with the tax implications of owning a yacht, this is not intended to provide tax advice, as only a professional accountant or financial advisor acting in a fiduciary capacity should advise you. If you are looking for a reputable CPA to assist you with your decisions surrounding a yacht purchase or making your boat available for charter, please contact Navigare Yachting and we will share several recommendations with you.

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Business structure

How you choose to run your business, whether in your name or through a dedicated corporation, will have an impact on the depreciation you can take if any. The choice is yours, however holding title to the yacht in a corporate entity, either an LLC (limited liability company), partnership, or corporation, for example, reduces your legal exposure and financial risk. Holding title through a legal entity may also trigger tax consequences and advantages not available to individuals. However, notwithstanding the potential tax benefits, most yacht owners will choose an LLC or another Corporate entity to reduce their liability associated with the yacht.

What is active yacht ownership?

The phrase “active yacht ownership” refers to the business strategy of purchasing a yacht and placing it into a charter program to generate income, thus reducing the cost of yacht ownership. Generally, the program allows for some personal use of the yacht at the discretion of the owner. In some circumstances, additional tax credits are available beyond the “traditional” deduction of day-to-day business expenses. These tax benefits may vary and may or may not apply to your particular situation. To verify your active participation in the business, the IRS has defined several criteria that one must meet before the additional deductions may be legally taken. These criteria include, but are not limited to:

The ability and intent to make a profit (this is called the “hobby loss rule”, explained below)
The owner must perform at least 100 hours of work on the business each year, and more than any other person related to the yacht’s activity (for purposes of the 100-hour test, a taxpayer’s spouse’s participating in the activity is also treated as participation by the taxpayer).

Such hours of work constitute “material participation” in your business and may include:

attending a boat show, and
maintaining the business’s website and promoting the business online, and
travel for physical inspection of your yacht as well as testing of the vessel and its systems, and
getting to know the intended sailing grounds where your yacht will be placed to promote your charter business.

Active Participation is very different from passive activity (such as long-term real estate rentals). Generally, any rental activity is deemed a passive activity, without regard to what extent the taxpayer participates in the activity. However, your yacht business is not considered a rental activity if:

The average period of customer use for the yacht is seven days or less;
The average period of customer use for the yacht is 30 days or less AND significant personal services are provided on behalf of the yacht owner for making it available for use by customers.
Extraordinary personal services are provided by or on behalf of the owner of the yacht in connection with making the yacht available for use by customers.

Expensing through Section 179

One of the most well-known incentives available when actively participating in a business is a section of the IRS code called “Section 179”. It was designed to help small businesses as they set out to buy or lease new or used equipment. It allows a taxpayer to deduct the cost of certain types of property (such as a yacht) on their income taxes as an expense, rather than requiring the cost of said property to be capitalized and depreciated. As of January 1, 2018, under section 179(b)(1), the maximum deduction is capped at $1,000,000 per year. This means that a taxpayer may elect to deduct up to $1,000,000 of the value of the yacht per year. If you adhere to the IRS guidelines and get the competent advice of a knowledgeable CPA, your charter yacht operations may qualify as an active business eligible to take advantage of this and other sections of the IRS code.

The hobby loss rule (Section 183)

Section 183 of the IRS code, also known as the “hobby loss rule”, limits the losses that can be deducted from income that are attributable to hobbies and other not-for-profit activities. In general, losses which occur in for-profit activities are not limited and can be used to offset other income from other activities. But the Section 183 limitation curtails those deductions when the activity has been deemed a hobby. It is generally accepted that if one generates a profit 3 out of 5 years, the activity is not considered a hobby. However, the code does not state that a profit MUST be made for 3 out of 5 years to clear the hobby loss rule. Therefore, your business must demonstrate “the ability and the intent” to make a profit. Expert accountants make recommendations on how to justify the “ability and intent” to generate a profit while running a business of yacht charters. Demonstration of “ability and intent” can be shown through careful research before starting a charter activity, and demonstrated by drafting a thorough business plan, documenting charter and non-charter activities rigorously, keeping accurate books of account, and also actively promoting the yacht available for charter. Since each tax situation is unique and varies from year to year, we advise all of our clients to seek proper professional assistance on this matter before engaging in the charter activity.

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Claiming depreciation within your for-profit boat activity

As explained above, expensing under Section 179 of the IRS is the most accelerated form of depreciation. Section 179 allows a taxpayer to expense (or deduct as a current rather than a capital expense) up to their basis in the vessel, currently capped at $1 million per year, of the total purchase price of new and used qualified depreciable assets it purchases and places in service in 2018, with certain limits. Those unable to claim this allowance may recover the cost of qualified assets over longer periods, using the depreciation schedule from Sections 167 or 168. The special allowance under Section 168 has become known as “bonus depreciation”. Note that it is only applicable if the yacht owner and taxpayer did not use the property before its acquisition and did not acquire the property from a related party. Additionally, a yacht is considered qualified property since it has a recovery period of 20 years or less, however, Section 168 will only apply to a new yacht.

At-risk rules

Section 465 of the IRS code limits losses that may be deducted by certain taxpayers engaged in covered activities under section 465. The at-risk rules apply to the leasing of depreciable personal property, including boats and yachts. Any loss from the covered activity for the year is allowed only to the extent the taxpayer is at-risk concerning the activity at the close of that year.

Alternative strategy: boat as a second home

Should the active business route not suit your sailing program or your circumstances, the second home qualification may be of interest to you. A watercraft that has at least one berth, a galley, and a toilet can qualify for a mortgage interest deduction as a second home. However, deductions are limited for rentals of a second home used for personal purposes:

If renting out the second home (yacht), the taxpayer must use it himself/herself for the longer of 15 days or 10% of the number of days the yacht is rented out.
If a boat is not a personal residence because there are too many rentals or two few personal-use days, it is treated as a rental property and all expenses, including interest, are allocated between rental use and personal use. The personal use portion of the interest expense is not deductible because the property fails to qualify as a residence.

Expenses attributable to rental use are deductible but are subject to the passive, activity, hobby loss, and at-risk limitations described above.

Exit strategy

Prospects looking to purchase a yacht and place it into a charter program should also prepare their exit strategy. It’s critical to understand ahead of time the consequences of terminating the program you've engaged in; one of the most significant events being the recapture, or repayment of certain deductions, at the time you resell your yacht.

Independent advice

Another factor looked at by the IRS in their analysis of how to treat your business, is whether the yacht owner sought independent tax advice outside of the charter operators that promoted the yacht sale in the first place. Therefore, we urge our clients to obtain the expert guidance of a CPA who can walk them through their options and prepare them for a potential tax audit. Many brokers and yacht management companies do not disclose all of the risks and uncertainties of owning a yacht as a business. Very few charter arrangements will satisfy the IRS requirements, and tax audits can be detailed and onerous! Should you need further assistance, please contact us, we would be delighted to speak with you and your CPA about creating a charter program well suited to your unique needs.

Additional resources

For more information, please review the following. We do not undertake to provide any advice on your tax situation, but these links could help you ask the right questions of your CPA or other tax professional. Please note that the tax code regulations and tests are updated and amended by the IRS regularly, and therefore we recommend that you speak to a tax and legal professional for more information on any of these topics.

Boatinglaw.com, Checklist for Significant Vessel Purchase http://www.boatinglaw.com/maritimearticles/purchaseofavessel.html

IRS Publication 925 – Active vs. Passive Activity https://www.irs.gov/pub/irs-pdf/p925.pdf

Section 179 (26 U.S.C.A. §179) https://www.law.cornell.edu/uscode/text/26/179

Section 168 (26 U.S.C.A. §168) https://www.law.cornell.edu/uscode/text/26/168

IRS Publication 936 - Boat as a Second Home https://www.irs.gov/pub/irs-pdf/p936.pdf

Inquire About Yacht Ownership

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By SuperyachtNews 24 Nov 2020

IRS Tax Code - Section 179 deduction

James neocleous of jaffa & co., on an emergent tax benefit that may be of interest to us superyacht clients….

This briefing note explores a tax benefit available in the USA for owners of new and used yachts. This tax benefit may assist existing members of the superyacht and aviation industries and may well entice those who are yet to enter the market.

Businesses in the USA may be able to benefit from Section 179 of the of the Internal Revenue Code and deduct the full purchase price of certain qualifying equipment from their gross income.

The Tax Benefit

Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year (the “Section 179 Deduction”). That means that if you buy (or lease) a yacht or aircraft, you may be able to deduct the full purchase price from your gross income for the year.

The deduction limit for 2020 is $1,040,000.

The spending cap for 2020 is $2,590,000. The deduction begins to ‘phase out’ on a dollar-for-dollar basis after $2,590,000 is spent by a given business. The entire deduction will cease to be available if a business reaches $3,630,000 in purchases.

These limits may increase for the year 2021, in line with inflation, although we understand clients are keen to utilise the exemption before the forthcoming change in Presidential administration.

It is clear that the Section 179 Deduction is aimed at benefitting small to medium sized businesses and assets, given the price limitations.

In order to utilise the Section 179 Deduction, certain criteria must be met, including the following:

1. The buyer, and registered owner, must be an entity such as a corporation, partnership, or LLC.

2. The yacht must be used for a legitimate business purpose, such as chartering.

3. The yacht can be new or used; the important point is that it must be “new to you”.

4. The yacht must be acquired in an “arms-length” transaction or financed with certain qualified leases and loans.

5. The yacht must be put into service in the same year that it was purchased.

Further, the asset must be used for business purposes at least 50% of the time. The depreciation limits will be reduced by an amount corresponding to the % of time that the vehicle is not used for business use.

The Section 179 Deduction will also cover the purchase of upgrades and improvements to the asset. This includes, for example, upgrades to avionics, the addition of gyro stabilisers or replacing paintwork. The caveat is that this must all be undertaken in the same calendar year as the purchase.

If the requirements are met and the purchase or lease is structured in the correct way, owners may be able to write off the entire purchase price of their newly purchased yacht against their trading profits.

In order to ensure that you can take advantage of the Section 179 Deduction, we recommend that legal advice is obtained before entering into any sales agreement. We also suggest that owners obtain a local tax opinion.

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New Laws Makes Buying A Yacht A Smart Tax Move

By Robert Bowman | Posted On Apr 24, 2018 Updated On Jun 03, 2020

The latest revisions to the 2018 tax laws have given yacht owners a lot to be thankful for when it comes to saving money. Thanks to the recent change in legislation, customers that buy a new or pre-owned yacht beginning in 2018 and ending in 2022 that is used in either a yacht charter business or other business activity, can benefit from a substantial federal tax deduction. Offsetting the cost of yacht ownership through Charter has been an advantage for many owners for years, particularly with the deduction opportunities for related expenses. But including federal deductions like this adds an entirely new level of savings that can make owning a slightly larger or more expensive yacht more achievable.

As the largest yacht brokerage firm in the U.S., United Yacht Sales has the unique position to combine our industry experience, our multiple new yacht brands, and our extensive number of brokerage listings with our yacht charter services to offer potential clients a great opportunity to reap the benefits of these new tax changes. If you have ever considered owning a yacht or upgrading to a larger one, allow the experts at United Yacht Sales guide you through the process of setting up your boat for charter and take advantage of these federal deductions before they end.

Here are some of the highlights and stipulations of the new laws:

-The vessel must be used as in a business activity such as yacht charter -The new deductions cover both new and used yachts, but only from 2018 through 2022 -The yacht must be owned by the business or yacht charter company -New electronics and equipment used for business activities on the yacht can also be 100% deducted -Deductions are not limited to the taxable income of the business entity -United’s charter listing Aqua Life is a perfect example of how new yacht owners can use their yacht purchase not just for tax deductions, but also as a revenue stream.

Aqua Life is a 2016 Horizon 94’ Motor Yacht that charters year round in the Caribbean. At time of purchase the yacht cost several million dollars, but now charters at a starting price of $49,500 per week. Even if it’s just chartered twice a month at the lowest rate, that is an annual income of $1.2 million that can offset the cost of the yacht, the maintenance, dockage, and other expenses. Working with United’s Charter Division would assist you in managing your new yacht as well as keeping it booked all season long with our strategic charter marketing efforts.

If you want to learn more about the new tax deductions and how it can benefit you, please contact our United Yacht Sales Headquarters at (772) 463-3131.

Disclaimers:

Boats and yachts are considered listed property and therefore have special IRS rules which dictate whether or not they qualify, including personal use limitations.

No tax or legal advice is being offered. Please consult your tax adviser to determine its suitability for your unique situation.

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.css-7gvbs7{max-width:var(--chakra-sizes-full);}@media screen and (min-width: 48em){.css-7gvbs7{max-width:600px;}} US Tax Laws Every Yacht Owner Should Know

BONUS DEPRECIATION

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.

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 (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.

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.

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.

Chris Moss CPA Attorney Tax Blog

Are Yachts Tax Deductible? Here’s What You Need to Know

For many, the idea of owning a yacht is a luxurious dream.

But with the right knowledge, you can make owning a yacht even more rewarding! Are yachts tax deductible? Here’s what you need to know to make the most of your investment.

In this article, we’ll explore what a yacht is, what kind of tax deductions you can take for business or personal use of a yacht, the limitations of these deductions, and other tax relief for yacht owners.

Read on to find out how you can maximize your yacht ownership experience!.

Table of Contents

Short Answer

No, yachts are generally not tax deductible.

The IRS considers yachts to be luxury items and not essential, so they are not eligible for tax deductions.

However, if the yacht is used for business purposes, such as chartering or renting out, then some of the expenses related to the yacht may be tax deductible.

Additionally, you may be able to deduct some of the interest expenses associated with buying the yacht.

What is a Yacht?

A yacht is a large, luxurious boat that is used for recreational activities such as fishing, sailing, and leisure cruising.

Yachts can range in size from small sailboats to large motor vessels and can be used for both personal and business purposes.

Yachts typically have spacious cabins, luxurious amenities, and many other features that make them ideal for entertaining or relaxing.

Yachts are often used for family vacations, corporate events, or even as a second home.

In terms of design, yachts come in a variety of styles, from classic sailing vessels to more modern, high-tech motor boats.

Many yachts feature amenities such as air conditioning , hot tubs, multiple decks, and private cabins.

Some yachts are even equipped with state-of-the-art technology such as satellite television, Wi-Fi, and navigation systems.

Yachts are expensive investments and typically require significant maintenance.

They also require a crew to maintain and operate them.

Depending on the size and type of yacht, the cost of ownership can range from several hundred thousand dollars to millions of dollars.

For this reason, it is important to understand the tax implications of owning a yacht before making such an expensive purchase.

Tax Deductions for Business Use of a Yacht

When it comes to tax deductions for owning a yacht, the key factor is how it is being used.

If the yacht is being used primarily for business purposes, such as entertaining clients or holding company events, then the costs associated with owning the yacht, such as fuel, maintenance, and repairs, can be written off as a business expense.

This means that these expenses can be deducted from the company’s income when filing taxes, thus reducing the company’s tax liability.

The IRS does not consider the purchase of a yacht to be a deductible business expense, however, any related costs such as fuel, maintenance fees, and repairs may be deducted.

Additionally, if the yacht is used for charters, the income generated from this activity is taxable.

It is important to note that if the yacht is used exclusively for personal use, there are no tax deductions available.

Furthermore, the IRS requires that the business use of the yacht be “substantial” in order to qualify for tax deductions.

This means that the yacht must be used regularly and consistently for business purposes in order to qualify for deductions.

In conclusion, tax deductions for owning a yacht depend on how it is being used.

If the yacht is used primarily for business purposes, such as entertaining clients or holding company events, then the costs associated with owning the yacht, such as fuel, maintenance, and repairs, can be written off as a business expense.

However, if the yacht is used solely for personal use, there are no tax deductions available.

Tax Implications for Chartering a Yacht

When it comes to chartering a yacht, there are certainly a few tax implications to consider.

For starters, the income generated from this activity is taxable.

This means that you must report any income you earn from chartering a yacht to the IRS, and you will be expected to pay taxes on this income.

Additionally, any expenses related to chartering the yacht can be deducted from your taxable income.

This includes things like fuel and maintenance costs, as well as any fees associated with operating a charter business.

The other important tax implication to consider is that you may need to pay self-employment taxes on the income you earn from chartering a yacht.

This means that you will be responsible for paying Social Security and Medicare taxes on the income you generate, which can be expensive.

However, the good news is that the self-employment tax rate is lower than the rate applied to regular income tax, so you will still be able to save some money in the end.

Finally, it’s also important to keep in mind that the IRS views chartering a yacht as a business activity, so you must maintain accurate records of all income and expenses related to the activity.

In most cases, the IRS will require you to provide proof of your expenses when filing your taxes.

If you fail to do so, you could face serious penalties and fines.

In conclusion, owning a yacht can be tax deductible depending on how it is used.

If your yacht is used for business purposes, such as entertaining clients and holding company events, the costs associated with owning the yacht, including fuel and maintenance, can be written off as a business expense.

When it comes to chartering a yacht, you will need to pay taxes on the income you generate and may be required to pay self-employment taxes.

It’s also important to keep accurate records of all income and expenses related to the activity, as the IRS requires proof of expenses when filing taxes.

Tax Implications for Personal Use of a Yacht

When it comes to the personal use of a yacht, there are no tax deductions available.

This means that if you use your yacht solely for pleasure and entertainment, you cannot write off any of the costs associated with owning the yacht, such as fuel and maintenance, as a business expense.

However, if you make money from renting out your yacht, you will be subject to taxes on that income.

In addition, if you make any profits from selling your yacht, you will be required to pay capital gains taxes on those profits.

In some cases, you may be able to claim certain deductions related to the personal use of your yacht.

For example, if you make any improvements to the yacht, you may be able to deduct the costs associated with these improvements as an itemized deduction.

Additionally, if you use the yacht as collateral for a loan, you may be able to deduct the interest paid on that loan as a deduction.

It is important to note that the IRS considers a yacht used for personal purposes to be a luxury item and as such, any costs associated with its use are not deductible.

Additionally, if you make any money from renting out your yacht, you will be subject to income taxes on that income.

Therefore, it is important to consult with a qualified tax professional to ensure that you are in compliance with the tax laws related to the personal use of a yacht.

Limitations of Tax Deductions for Yachts

When it comes to taking tax deductions for owning a yacht, there are certain limitations that must be taken into account.

First, the yacht must be used primarily for business purposes in order to be eligible for tax deductions.

This means that if the yacht is used primarily for personal use, then it cannot be deducted as a business expense.

Additionally, the cost of the yacht must be considered in order to determine the amount of tax deductions that can be taken.

In some cases, the cost of the yacht may exceed the amount of money that can be deducted in taxes, resulting in a net expense for the owner.

In addition to these two considerations, the type of yacht must also be taken into account when calculating tax deductions.

Generally, yachts used for business purposes must be of a certain size in order to qualify for deductions.

This is because larger yachts are more expensive and require more maintenance, which can lead to higher tax deductions.

Furthermore, the type of business activity taking place on the yacht must also be considered since certain activities may not be eligible for tax deductions.

Finally, the location of the yacht must also be taken into account when calculating tax deductions.

Yachts located in certain countries may not be eligible for deductions due to local regulations.

Additionally, certain countries may have different tax codes which can affect the amount of deductions that can be taken.

It is important to be aware of these regulations and codes in order to ensure that any deductions taken are valid and legal.

Other Tax Relief for Yacht Owners

In addition to potential tax deductions, yacht owners may be eligible for other forms of tax relief.

This includes deductions for any costs associated with the upkeep and maintenance of the yacht, such as fuel, dock fees, and insurance.

Additionally, owners may be able to deduct any interest accrued on loans taken out to purchase the yacht.

For business owners, the IRS allows deductions for the cost of operating and maintaining a yacht as long as it is used in a business-related activity.

This includes using the yacht for entertaining clients or hosting company events.

However, it is important to note that the IRS does not allow deductions for entertainment expenses for personal use.

Yacht owners may also be eligible for tax credits for investing in energy-efficient equipment for the yacht, such as Solar Panels, Fuel Cells, and Wind Turbines.

Additionally, owners may be able to claim deductions for the cost of any safety equipment installed on the yacht, such as life jackets and flares.

Finally, yacht owners may also be able to take advantage of tax-deferred retirement plans, such as a 401(k) or IRA.

By investing in a tax-deferred plan, owners can defer taxation on income earned from renting out the yacht or other related activities.

This can be a great way to save for retirement while taking advantage of tax breaks.

For business purposes, such as entertaining clients and holding company events, costs associated with owning the yacht, including fuel and maintenance, can be written off as a business expense.

It is important to note that each state has its own set of rules and regulations when it comes to taxes on yachts, so it is always a good idea to consult a local tax professional to ensure that you are in compliance with all applicable laws.

Lastly, it is important to keep all receipts and records of any expenses associated with your yacht, as this will help you to maximize your potential savings when it comes to deductions.

Final Thoughts

Owning a yacht can be a great way to entertain clients, generate income, and enjoy time out on the water.

However, it is important to understand the tax implications of owning a yacht, as well as the limitations.

Depending on how the yacht is used, it can be tax deductible – however, it is often best to speak to a qualified tax professional in order to understand the full implications.

Now that you know the basics of yacht ownership and taxes, you can make an informed decision on whether or not to make the purchase.

James Frami

At the age of 15, he and four other friends from his neighborhood constructed their first boat. He has been sailing for almost 30 years and has a wealth of knowledge that he wants to share with others.

Chartering & Tax Deduction

Your boat as a business – the shared economy.

By placing your new yacht in a charter management program you are converting it from a personal asset to a business asset, essentially an equipment rental business. The relationship between you and the charter management company is structured so that you own the yacht and they assist you in managing your yacht rental business.

At Cruising Yachts we have been placing new yachts in charter for years and have seen these yacht owners reduce the costs of purchasing and owning their yacht by OVER 50% in many cases through a combination of tax deductions and charter income. Actual savings vary depending on the size of the yacht and the location in which it is placed in charter.

Tax Shelter and Cash Flow Advantages of Charter Ownership

Under Section 179 of the Internal Revenue Code, you can take a one-time expense deduction in the year of purchase equal to the purchase price of your yacht up to a maximum deduction of $500,000. This benefit is reduced for yachts priced over $2,000,000 (a subject beyond the scope of this article); plus
You also can take a bonus depreciation deduction in the year of purchase of 50% of the amount of the purchase price over $500,000; plus
You can depreciate the adjusted cost basis of your yacht (the balance of the purchase price after deducting the Section 179 expense deduction and 50% bonus depreciation deduction) over 10 years; plus
You can deduct against your charter income and other employment income all ordinary and necessary charter related expenses including, for example, slip fees, insurance, repairs, loan interest, property tax, etc.; plus
You will receive income from the charter of your yacht, the amount of which varies depending on the size of your yacht and the charter company you use.

This substantial tax deduction is an attractive tax planning opportunity if you are a highly compensated individual or receiving a large bonus or other large payment of ordinary income from active employment or the active conduct of a trade or business. It is not available to offset passive rental income, capital gains or IRA withdrawals.

AND THIS MAY BE THE BEST NEWS OF ALL..… the Section 179 and Bonus Depreciation deductions are exempt from the AMT calculation!

Professional Maintenance and Support – Concierge Service

Your charter management company will require that every charter customer demonstrate that they are qualified to operate the yacht being chartered in order to minimize the potential for any damage. Damage caused by a charter customer, up to the amount of the insurance deductible, is paid for by the damage deposit (cash or credit card) they make up front when chartering the yacht.

In San Diego, we work with exclusively with an incredible group at Seaforth Boat Rentals, Tours & Charters who have locations throughout San Diego and Mission Bays. They have customized plans to fit every charter need and will work closely with you to ensure a smooth experience. Give us a call and we can get you in touch with the right people there.

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A galley, head… and tax deduction? Tax savings and boat ownership

Tax benefits, tax reform, and fractional boat memberships, these days there are many companies that target would-be boat owners with programs offering boat ownership at a ‘reduced cost’ of ownership. while some offer full charter service structures, within which a boat owner could enter their boat, other companies offer fractional ownership programs (similar to timeshares) to help defray some of the costs associated with owning a boat..

A relatively new breed of companies, however, offers fractional memberships as the primary way to offset some of the costs associated with boat ownership. With a fractional membership program, the boat owner remains the exclusive owner of the boat and allows specific people (usually the same set of people) to use the boat for a fee. Instead of selling shares of ownership, the boat owner works with a company to sell these annual usage memberships to fellow boating enthusiasts who may not be ready for full boat ownership. For example, a boat’s usage might be broken up into 60-time slots per month (2 per day), some weekdays, and some weekends. While the boat owner would retain the actual titled ownership of the boat (and all of the legal obligations and benefits along with it), the boat owner would work with a company to lease a portion of those time slots to ‘members’ on an annual basis, while usually retaining a certain number of time slots for personal use by the boat owner. These members would then pay a monthly fee that would generally be split between the boat owner and the company which helped to find the members on behalf of the boat owner. Finally, as part of the agreement with the company, the boat owner would reimburse the company for its expenses associated with providing the slips, insurance, maintenance, and other costs of ownership which are negotiated and maintained by the company.

So at the end of the day, the boat owner retains certain personal use of the boat, earns income from the members, and generally doesn’t have to worry about the day-to-day maintenance, insurance, and other costs associated with the boat itself which are all provided by the company. In addition to the above, the boat owner could also end up with moderate to significant tax benefits depending on how they structure their ownership and the membership program. Surprisingly, the tax benefits associated with owning a boat are similar to those of owning a house, with a few key differences.

People often encounter the following questions when faced with purchasing a house: Is it going to be my primary home? Is it going to be my vacation home/second home? Will I rent it out? If rented, how often will I rent it? Will I use it as my office? Many people, however, don’t realize that these same scenarios may apply to the purchase of a boat, assuming it has both a kitchen (galley) and a toilet (head). Each scenario carries with it certain pros and cons from both a practical and tax perspective. From a tax perspective, each scenario requires a special classification that is largely dependent on how the property is used, by whom it’s used, and how often it is used in that way. The intended use of the boat causes the boat to fall into one of the following primary tax categories, each carrying with it certain federal and state tax ramifications: primary home, vacation home, vacation rental, rental, trade, or business.

Which tax benefits relate to which scenarios?

Primary home

Generally, if a person buys a boat with the intention of living on it and using it as their primary home, they are entitled to the same types of tax benefits associated with owning a house. The tax benefits include: (1) a deduction for mortgage interest or, in the case of a boat, boat financing interest and (2) a deduction for real estate taxes or, in the case of a boat, property taxes associated with the boat. These deductions are itemized on Schedule A of an individual’s tax return. With the changes resulting from tax reform at the end of 2017, for 2018 and after, there is a maximum allowance for interest on new loans up to $750,000 (aggregate of all mortgages), compared to the $1 million amount that used to be permitted. This applies to single or married individuals. Also, there is a $10,000 aggregate cap on the combined amount of both state income taxes and real estate/property taxes. This also applies to single or married individuals, meaning the allowable amount for this deduction is not doubled for married filers. While many people are familiar with these rules, this will not likely be the relevant scenario for someone purchasing a boat (in particular if they want to take advantage of placing the boat into a charter or fractional ownership program).

Vacation home

Generally, this scenario results when a person buys a house or boat for exclusively personal use when they already have a primary home. Thus this purchase becomes their second home, a.k.a. a vacation home. The tax benefits are the same as those described above under primary home. Note that the person will simply add the interest and property taxes associated with this ‘vacation home’ to that of their ‘primary home,’ hopefully without exceeding the limitations discussed above.

Vacation rental

If a person buys a boat with the intention to both use it personally (greater than 14 days per calendar year) and rent it (greater than 14 days per calendar year), they may be said to have purchased a ‘vacation rental’ and the tax treatment and benefits will change. The high-level benefit of a vacation rental is that the owner may be able to get certain of the benefits available under the primary home and vacation home categories, while at the same time being able to earn income to help offset certain related costs. This benefit may be further enlarged due to recent tax reform, which permits certain taxpayers to deduct 20 percent of qualified business income (which may, depending on the specific taxpayer's situation, including the income from the fractional membership program). As a general rule, however, in the event of a net loss (which boat ownership may produce, particularly if the boat is financed and depreciated quickly), a taxpayer is prohibited from offsetting the net loss against other forms of income, and the loss will carry forward to off-set future rental revenue.

When computing the net income or loss of the rental activity, a taxpayer is permitted to offset the rental revenue with related expenses, which include depreciation, interest, and taxes. The Internal Revenue Code and Treasury Regulations provide rules on (1) how to allocate expenses and (2) the order in which those allocated expenses may offset the rental revenue. First, 100 percent of expenses directly related to the rental activity itself are offset against the revenue (advertising, background checks, initiation fees, cleaning fees, etc.). Then expenses that do not exclusively apply toward the rental activity itself are bifurcated between business and personal use of the boat; for example, repairs and maintenance, financing interest, property taxes, depreciation, etc.

The additional benefit in this vacation rental scenario relates to the personal portion of the financing interest and property taxes. Although disallowed as an off-set against rental revenue (in which they aren’t likely needed anyway [given the other costs related to the rental portion, which can be off-set]), the personal portion of the financing and property taxes are permitted as itemized deductions on the individual’s income tax return, similar to the primary home or vacation home scenarios above. Further, there is a certain mismatch in the expense allocation rules that could provide for a result where one is able to off-set the entire amount of rental revenue and still have a large amount of unused personal portions of mortgage/financing interest and real estate/property taxes, both of which may be further deducted as itemizations on Schedule A of an individual’s income tax return. This is a common planning strategy where the intended result can differ depending on the facts and circumstances of the individual taxpayer and the chosen methodology. Depending on the taxpayer’s facts and circumstances, their accountant may be able to run various calculations to find the optimal split to more effectively minimize the taxpayer’s tax obligations.

For example, assume the following facts: $500,000 new boat purchase price, $100,000 annual rental revenue, $50,000 annual rental commission expenses, $20,000 annual expenses associated with repairs and maintenance directly related to the renting of the boat, $12,000 annual financing interest, and $5,000 annual property taxes (ignoring depreciation expense). Now assume that the boat is used personally each year for 60 days and rented to others each year for 90. Under the general allocation principles, we would allocate the expenses based on the total personal to total rental days such that 60 percent (90 rental days/150 total days) of all expenses are used to offset the rental revenue. This would mean that 40 percent of those expenses not directly related to the rental activity itself would be deemed ‘personal expenses.’ Accordingly, 40 percent of the financing interest and property taxes would be available as an itemized deduction on Schedule A of the individual’s tax return as personal expenses. Under another accepted methodology with regard to interest and taxes alone, the personal portion of the financing interest and property taxes could instead be computed by looking at actual rental day use over 365 days; i.e. , the rental/business portion of interest and taxes would be 25 percent (90/365), leaving 75 percent of those same expenses to be considered personal and thus achieving a higher itemized deduction. Note that while maintenance and other similar expenses can be apportioned based on days of actual use due to their direct correlation to use, courts have repeatedly ruled that interest and taxes are allocated over the course of the entire year (e.g. 365 days). Depending on the taxpayer’s specific facts and circumstances, the difference between these two allocation methodologies could mean significant tax savings.

While the outcomes really depend on the facts and circumstances of the individual taxpayer, it is worth considering how recent tax reform has affected this scenario. First, it may be possible to deduct 20 percent of qualified business income, effectively paying only 29.6 percent on the net income of the rental activity, assuming that it qualifies. Second, it may be possible to take advantage of increased section 179 deductions and 100 percent bonus depreciation deductions to depreciate the boat quickly and off-set all rental revenue for years into the future, noting that net losses are not permitted to offset other types of income from other activities and therefore would carry forward to offset future rental revenues. Further, 1031 exchanges no longer apply to boats, only actual real property like buildings, houses, and land. Absent the possibility of a 1031 exchange to defer gain, with a $0 or reduced basis in the boat due to depreciation, the taxpayer will face depreciation recapture upon a later sale, meaning the taxpayer will be forced to increase his income (subject to the taxpayer’s ordinary income tax rates) by the gain. Thus if the boat was fully depreciated and had an adjusted basis of $0, then even a later sale of $1, could trigger a $1 gain subject to the taxpayer’s ordinary income tax rates. Note that there are differences in computing the recapture amount depending on whether the taxpayer depreciated under section 179 or Bonus Depreciation, the former likely causing a larger recapture amount.

Further, the tax outcome depends on how the boat is owned (personally, through a corporation, through an S-Corporation/Partnership, a limited liability company or other ‘pass through’ entity, etc.). And while there is no need to get caught up in the rules and definitions related to ‘passive/active activities’ or legitimate ‘trade or businesses,’ outlined below in the Trade or Business scenario, the benefits of a Vacation Rental scenario may be limited due to (1) the prohibition of off-setting the taxpayer’s other types of income (such as ‘active’ W-2 income) with the net losses and (2) the possibility that the taxpayer may have already exceeded his/her limits with regard to taking itemized deductions of financing interest and property tax. On the upside, even within these limitations, the taxpayer is still earning money that may serve to offset the costs associated with owning a boat. And why not earn money on a boat that might otherwise be sitting unused in a slip. A taxpayer considering purchasing a boat to place into a fractional membership program should consult their tax and legal advisors well in advance of any purchase to confirm the most advantageous structure and course of action.

If a person buys a boat with the intention to rent it, only using it personally for fewer than 15 days per calendar year, then the boat will simply be considered a rental property. As this is not likely to be the case, and since it’s better from a tax perspective to use it for more than 14 days and fall under the vacation rental scenario, this article will not go into depth with respect to a pure rental property. However, under the passive income rules for real estate investors, the taxpayer may be able to use up to $25,000 of annual losses to offset other income. While boats are generally considered tangible personal property, the IRS has previously determined that boat slips constitute real estate assets that generate rents from real property, so rental income or losses attributable to the boat slips may be deductible under the passive income rules. Again, the specific facts and circumstances of each case will be important in making any determination as to whether the rental income generated can be apportioned to the boat slip.

Trade or business

Generally, if a person buys a boat with the intention of using it in an existing, or to establish their own, boat charter business, they are entitled to the same types of tax benefits associated with traditional trade or businesses. The types of tax rules that apply to a trade or business also depend on how the boat and business are set up. For example, if the business is a C Corporation that owns the boat, then any net loss from the business simply carries forward to future tax years of the corporation. If the business is set up such that the boat is owned by the taxpayer directly, or through some form of a pass-through entity (S Corporation, Partnership, LLC, Trust, etc.), then it may be possible for the net loss from the business to flow directly through to the taxpayer and off-set other types of income on the taxpayer’s personal return. It is this scenario that entices many would-be charter boat owners, though it is complex (largely turning on the specific facts and circumstances for each taxpayer) and not without peril.

What most taxpayers don’t realize is that there are complex rules that must be satisfied if they are to fully benefit from this scenario (a fact that much fractional ownership and fractional membership companies may not adequately address). Generally, these complex rules require the taxpayer to demonstrate that the taxpayer is (1) engaged in a trade or business and (2) actively involved in that business. Failure to satisfy the former could trigger the hobby loss rules and result in either not being able to deduct expenses or not being able to offset other types of income with the losses from the charter business. Failure to satisfy the latter could classify any losses as ‘passive’ in nature, thereby limiting their off-setting potential to only other forms of passive income which would reduce or eliminate much of the tax benefit originally sought by the taxpayer (and potentially subjecting them to penalties and interest for tax amounts which would have been payable but for the treatment as a trade or business).

Engaged in a trade or business

Section 162 of the Internal Revenue Code generally allows a taxpayer to deduct expenses associated with the carrying on of a trade or business. While there is no actual definition of ‘trade or business’ in the Internal Revenue Code or the Treasury Regulations, the U.S. Supreme Court has indicated that “to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer’s primary purpose for engaging in the activity must be for income or profit. A sporadic activity, a hobby, or an amusement diversion does not qualify.” Whipple v. Comm’r , 373 U.S. 198, 197 (1968). For pass-through structures (not a C Corporation), section 183 of the Internal Revenue Code serves to both define an “activity not engaged in for-profit” and disallow those deductions associated with such an activity. The Treasury Regulations associated with section 183 of the Internal Revenue Code present nine factors that might be present to determine whether an activity is engaged in for profit. While a single factor alone is not dispositive, the IRS will take all nine factors into account. These nine factors include the following:

1. Manner in which the taxpayer carries on the activity

2. The expertise of the taxpayer or his advisors

3. The time and effort expended by the taxpayer in carrying on the activity

4. Expectation that assets used in the activity may appreciate in value

5. The success of the taxpayer in carrying on other similar activities

6. The taxpayer’s history of income or losses with respect to the activity

7. The number of occasional profits, if any, which are earned

8. The financial status of the taxpayer

9. Elements of personal pleasure or recreation

Treas. Reg. section 1.183-2(b).

It is important to note that there have been several tax court cases specifically challenging charter businesses and the courts have continued to interpret and provide examples, beyond those provided in the Treasury Regulations themselves, associated with each factor. And while the regulations indicate that a reasonable expectation of profit is not required, the courts and the IRS have primarily focused on the fact that the primary purpose of engaging in the activity must be for income or profit (which may include certain financial models which the taxpayer’s advisors should help to prepare in advance of any boat purchase). Accordingly, while the taxpayer may be able to satisfy several of the above factors, if the taxpayer cannot show that the activity ever even had the potential of being profitable, meaning that at some point it would recoup its associated costs, then the taxpayer will fail to satisfy what the courts have determined the primary purpose component, and the rules of section 183 will disallow the deductions. So a business plan, separate books and records, and management agreements alone will not necessarily satisfy the above tests. Further, the taxpayer could be subjected to additional tax assessment, as well as penalties and interest on those assessments going back to earlier years.

Generally, the IRS can only go back three years to assess the additional tax due (so long as a return has been filed; there is no such limitation for years in which no return has been filed). This is known as the statute of limitations. In instances, however, where the taxpayer may have underreported his gross income by 25 percent or more due to taking additional trade or business expenses now deemed to be disallowed under section 183, it is possible that the statute of limitations would extend to six years. Further, the initial burden of proof is on the taxpayer under section 7491 to minimally establish the basic elements of the pertinent nine factors listed above, thereafter the burden shifts to the IRS.

Actively involved in that trade or business

So let’s assume that the taxpayer is able to structure his business in such a way as to satisfy the rules of being engaged in a trade or business. The taxpayer gets to offset all his expenses of operating and financing the boat against his revenue from the business. But to the extent that the business has net losses, those losses may still be limited to only off-setting other sources of passive income, unless the taxpayer satisfies the rules of section 469, showing that the taxpayer materially participated in the activity thus making it ‘active.’ And without going into detail in this article, to determine whether or not a taxpayer is deemed to materially participate in an activity involves another comprehensive analysis that is outlined in the tax code and regulations, and further interpreted by the courts.

It is important to note, however, that before one can even conduct the material participation analysis, the taxpayer must determine whether they can structure their charter agreements to avoid being deemed rental activities (per se passive activities) under section 469. Where the taxpayer’s activities fall within one of the exceptions detailed in the code and regulations, the taxpayer can then move on to perform the material participation analysis.

The first and most common exception to the rule involves limiting the average charter (referred to as the average period of customer use in the regulations) to 7 days or less. Notably, the regulations include any days that the customer has a right to use the boat, which likely means that all days covered by the contract, and not just days of actual use, would be included in the day count calculation. Where the average charter length is more than 30 days, the taxpayer can still fall outside the definition of a rental activity if they provide significant personal services along with the boat rental. There are detailed definitions of what the IRS considers “personal services,” along with other exceptions that involve greater degrees of owner involvement or additional services related to the charter activity. which generally fall outside the scope of activity boat owners would like to provide but maybe enough to avoid being classified as a rental activity.

A taxpayer should consult with their legal and accounting advisors well in advance of any boat purchase to ensure that these tests are satisfied if the taxpayer is seeking to maximize the tax benefits under the trade or business classification.

Tax Reform

As discussed above under the Vacation Rental section, the impacts of tax reform with regard to a Trade or Business (again presuming a structure apart from a C Corporation) are the same; i.e. , 20 percent deduction on qualified business income, increased section 179 deduction, 100 percent bonus depreciation, and lack of 1031 exchange applicability. In a Trade or Business scenario, the impact of an increased section 179 deduction or 100 percent bonus depreciation could serve to trigger extremely large business losses in the first year of the business, which could be used to directly offset the taxpayer's other income (assuming the taxpayer is both engaged in a trade or business and materially involved for at least the calendar year in which full depreciation occurs). It is important to note, however, that while this may look like a great tax break (being able to offset other income such as ‘active’ W-2 income), section 1031 no longer applies to boats. Section 1031 used to defer the gain from the sale of a boat if the funds received in the sale were used to buy another boat; however, now the taxpayer must realize any gains at the time of a sale.

Accordingly, if a taxpayer depreciates the entire boat in year one, taking a large loss in the business to offset other income, the adjusted basis of the boat will be $0 for tax purposes (the full value will be depreciated to maximize the tax off-set). This means that any future amount of money received from the sale of the boat will be deemed a ‘recapture of depreciation and will trigger a tax liability (noting, as described above, that the amount of the recapture depends on the depreciation method used, etc.). For example, assume a $500,000 boat is fully depreciated in the first year. A future sale of the boat for $100,000 could mean a taxable gain of $100,000 because there is a $0 adjusted basis. And since $500,000 was depreciated, all $100,000 of that gain could be deemed to be depreciation recapture, meaning it will be subject to the taxpayer’s individual income tax rates in the year of the sale, rather than the more beneficial capital gain rates.

So assuming that the taxpayer successfully satisfies the rules outlined above, the taxpayer may be able to take the losses from the charter business, which could be large, and offset them against other income earned by the taxpayer for large tax savings. This will be minimized, however, by depreciation recaptures upon a later sale. So in a sense, a taxpayer may be able to depreciate a $500,000 boat in the first year (ignoring other revenue or expenses) to off-set $500,000 of other non-boat related income at the personal level for a tax savings of $185,000 (assuming maximum 37 percent individual income tax rate times $500,000). However, assuming a sale price of $200,000 five years later, the taxpayer could have a gain of $200,000, all subject to depreciation recapture, increasing ordinary income by $200,000 and his federal tax liability by $74,000. While this may still be advantageous for the taxpayer (in particular given the potential additional cash flow to offset the financing costs while the taxpayer-owned the boat), it will ultimately depend on the facts and circumstances of the taxpayer.

Finally, while a taxpayer may properly satisfy this Trade or Business scenario, the taxpayer should also be aware of the new net operating loss limitations resulting from tax reform. A taxpayer’s loss from an active trade or business is now limited to $500,000 for married individuals filing jointly ($250,000 for other taxpayers). Excess business losses will be treated as a net operating loss and carried forward (taxpayers are no longer permitted to carry back these losses to the previous two years). Further, net operating losses may now only be used to offset 80 percent of a taxpayer’s taxable income in a carryforward year. The remainder of any losses which are not allowed to be used to offset their income may be carried forward to be used in future years.

In conclusion, similar to buying a home or rental property, buying a boat can also generate tax savings and revenue to help offset the costs. And while there are varying ways to structure the boat ownership, each structure can carry significant tax benefits. Although the most advantageous structure may be the Trade or Business scenario, the Trade or Business scenario also comes with the most hurdles, traps, and risks. The Vacation Rental scenario, however, offers the next best set of tax advantages, may be tailored to the individual’s tax circumstances and doesn’t need to apply the hurdles imposed by section 183 or section 469 of the Internal Revenue Code.

It is critical for a taxpayer to work with their tax and legal advisors prior to attempting to navigate these complex rules. Every taxpayer’s facts and circumstances are different and may benefit from different structures and classifications for boat ownership. If you have any questions or would like to discuss your individual situation prior to purchasing a new boat, please give me a call or send me an email. I would be happy to help you navigate these complex rules to minimize your tax obligations, and help you to enjoy your boat as painlessly as possible (at least from a tax perspective!).

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I'm a financial planner with 6 overlooked tax credits you could be missing out on

Affiliate links for the products on this page are from partners that compensate us (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate tax products to write unbiased product reviews.

You've probably already thought about some tax deductions, but you might be missing some savings.
If you made energy-efficient updates to your home, there are federal and state credits and deductions.
If you paid interest on your student loans, you can deduct that amount at tax time.

It's tax season again. As you gather your W-2s and prepare your return, your mind is likely focused on big-ticket items like mortgage interest, charitable donations, and childcare costs that can substantially lower your tax bill.

But some smaller, more specialized tax credits and deductions could score you hundreds (or even thousands) of extra dollars back as well. These "hidden gems" can be especially valuable depending on your situation.

Here's an overview of some overlooked federal and state tax credits that filers often miss.

1. Green credits for energy efficiency and electric vehicles

To help promote sustainability and fight climate change, the federal government offers several tax incentives for households and drivers investing in energy-efficient upgrades or electric vehicles.

Home upgrades like installing high-efficiency HVAC systems, water heaters, solar panels, wind turbines, insulation, and more can qualify for credits that reduce what you owe on your taxes. The amounts and specifications differ based on the type of upgrade.

Similarly, purchasers of electric vehicles or plug-in hybrids may be eligible for credits of up to $7,500 , depending on the car's battery capacity. It's important to note that these are tax credits, not deductions, meaning they directly reduce taxes owed instead of just reducing your taxable income.

Many states also supplement federal credits with additional rebates, discounts, or incentives for energy-efficient products and electric vehicles — and some are quite generous. For example, California offers thousands back on solar panels and electric cars through state agencies. Before investing in any major energy or auto upgrade, review the available federal tax credits and state incentives to ensure you're eligible. Combined, these can potentially add up to major savings.

2. Health insurance premium deduction

If you're a freelancer , you can deduct your health insurance premiums. This can be a huge deduction for self-employed individuals and small business owners who have to pay for health insurance on their own. Many freelancers choose to go without insurance due to the cost — knowing about this deduction can help lessen the financial blow.

Most employed workers have employer-sponsored health insurance contributions taken from their paycheck pre-tax — and those paying for their own plans do not. This levels the playing field a bit for the self-employed by making health insurance premiums pre-tax.

3. Student loan interest deduction

For better or worse, student loans have become synonymous with higher education. Up to $2,500 in interest paid on federal and many private student loans is deductible each year on individual returns subject to income limits. The deduction starts phasing out for $75,000 single filers ($155,000 for joint) and disappears when your income hits $90,000 single ($185,000 joint).

With ballooning college costs and record educational debt burdens, this write-off softens the blow for early-career grads working toward financial independence.

4. Credits for higher education

The lifetime learning credit is a federal tax credit worth up to $2,000 a year for tuition and educational expenses paid for eligible college, university, or vocational school students.

Unlike the more commonly known American opportunity tax credit, which is only available for the first four years at an eligible school, the lifetime learning credit is available for all years of your postsecondary education. You can also apply it to courses to acquire and improve job skills.

To qualify for the lifetime learning credit, you must pursue a degree or other recognized education credential. The credit covers tuition, enrollment fees, books, supplies, equipment, and other education expenses.

Unlike a deduction, which just reduces taxable income, this credit directly reduces the taxes you owe. But it's not for everyone — this credit begins phasing out at $80,000 of modified adjusted gross income.

5. State and local tax deductions

This tax break allows you to take an itemized deduction for state and local general sales taxes instead of deducting state income taxes. At first glance, this might seem counterintuitive — why wouldn't you deduct state income tax, which is usually a larger sum? The sales tax deduction makes sense for filers who live in a state with no income tax, such as Texas, Florida, or Nevada.

Even if your state has an income tax, you may still come ahead by itemizing sales tax instead, depending on your tax profile. The IRS provides tables and tools to calculate if claiming sales tax delivers more savings than claiming income tax.

If you've recently made a large purchase subject to sales tax, like a boat, car, or home renovation, this could help lower your overall income (and tax bill). Remember that the 2017 Tax Cuts and Jobs Act capped the combined total deduction to $10,000 per taxpayer.

6. Child and dependent care credit

If you pay for childcare for your child or dependent — like day camp, before or after school programs, preschool, or day care — for you to work, you may be eligible for the Child and Dependent Care Credit .

This credit covers up to 35% of $3,000 in care costs for one qualifying dependent ($6,000 for two or more dependents) and can be up to $1,050 per dependent.

There are income restrictions , including $200,000 for single filers and $400,000 for married filing jointly. But, this tax incentive can help offset the steep costs working parents pay for childcare.

Main content

10 Small Business Tax Deductions Worth Knowing

You can save money by writing off expenses such as insurance, travel, your home office and more.

10 Small Business Tax Deductions

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For small business owners, there are a variety of tax deductions that can help them save money.

There's an old saying that it takes money to make money, and that's often the case for small business owners. It's common to incur expenses on everything from marketing and travel to supplies and insurance.

The good news is, you can write off a wide range of business expenses, and every deduction will help to reduce your taxable income.

Not sure where to start? Here are 10 small business tax deductions you don't want to miss.

1. Vehicle Expenses

If you use your car for business purposes, you might be able to deduct car-related expenses such as depreciation, toll payments, insurance, parking fees, registration fees, repairs and tires.

The IRS offers two ways to do so; using the standard mileage rate or deducting your actual car expenses.

If you opt for the standard mileage rate (65.5 cents per mile for tax year 2023), you calculate your deduction based on the miles you drive for business in a given tax year. If you opt for the actual car expenses method, you skip the mileage rate and itemize your actual car expenses.

"Whether you log miles for client visits, deliveries or business errands, the standard mileage rate can add up to significant deductions," Sean Lovison, a certified financial planner, CPA and the founder of Purpose Built, said in an email.

2. Travel Expenses

Travel expenses can be deductible if the purpose of a trip involves business. For example, if you're speaking at an industry conference out of town, you may be able to write off the:

Cost of transportation to and from the conference.
Transportation fares once you're at the destination.
Baggage fees.
Meals (50%).

The amount you can deduct, however, can vary based on the type of expense you're deducting and the percentage of the trip you spend on business activities. It's also important to note that a regular commute to the office won't qualify. "Commuting expenses are not tax deductible, even for business owners," Milla Liberson, an accountant, licensed tax expert and president of OnPoint Business Solutions, said in an email.

3. Home Office Expenses

Running your business from a dedicated space in your home on a regular basis can also qualify you for a deduction .

"If you have a dedicated workspace at home, the home office deduction can be one of small businesses's most powerful tax breaks," Lovison said.

You can opt for the simplified or actual expense deduction method. The actual expense method allows you to deduct direct expenses for the business part of your home in full. Plus, you can deduct a percentage of your home's overall expenses such as rent and utilities.

The simplified method, on the other hand, is when you multiply the square footage of the area you use for business, up to 300 square feet, by $5 to get your deduction.

4. Advertising and Marketing Expenses

Customers don't typically flock to a business unless it's promoting itself. Luckily, the IRS allows you to write off the money you spend bringing in and keeping customers. That said, your expenses have to pass the ordinary and necessary test.

"Spending money to get your business out into the world is an expense for almost every business," Christian Maldonado, CEO and founder of the US-based accounting firm Finsult, said in an email.

He explained that sometimes businesses use so many forms of marketing and advertising, that some of the expenses go under the radar.

"For example, tape with your business logo, online media buying, billboards, flyers, etc.," Maldonado said.

To avoid missing deductions , keep meticulous records of all of your advertising and marketing expenses throughout the year.

5. Work-Related Education Expenses

Have you been thinking about upskilling? You can write that off, too.

The IRS allows self-employed individuals to deduct expenses for education . The key requirement? The program has to help you maintain or improve the skills you need for your present work.

"Investing in yourself is investing in your business. The cost of courses, conferences and certifications directly related to your field can often be deducted," Lovison said. Deductible expenses can also include tuition, books, supplies, travel and certain transportation costs.

6. Insurance Premiums

Business insurance is also deductible. If you have policies in place that protect your business, you can generally deduct all the premiums you pay in a given tax year.

"Insurance is your safety net, and the premiums you pay for liability, professional indemnity and other essential business insurance policies are often tax-deductible," Lovison said.

7. Business Supplies and Materials

Supplies and materials are another deductible expense. For example, you can likely write off items such as paper, light bulbs, staples, printer cartridges, trash bags and cleaning products.

The key is that the items must be inexpensive, $200 or less, or consumed within a year. The IRS categorizes items that last longer or cost more as capital assets (which can't be deducted).

You can also deduct a variety of taxes that are directly attributable to your business. For example, state income tax on your gross business income, employment taxes you pay for employees, half of the self-employment tax and real estate taxes on business property can all be deductible.

9. Legal and Professional Fees

If you hire professionals to help you with different aspects of your business, such as an accountant or lawyer, you can deduct the ordinary and necessary fees they charge.

If the professional helps you with both business and personal matters, you can deduct only the fees for services related to your business.

10. Interest on Business Loans

Have you taken out a loan and used the proceeds on business-related expenses? If so, the IRS allows you to deduct the interest you paid on the loan during a given tax year.

However, if you use a loan for both business and personal expenses, the amount of interest you can deduct will depend on the percentage of the loan you use for your business. For example, if you spent 75% of a loan on your business and 25% on personal expenses, you could deduct 75% of the interest.

To ensure you deduct all you can and avoid mistakes, consider enlisting the help of a reputable tax professional.

"Tax laws are an ever-changing maze, and a seasoned tax advisor can guide you through it. Their expertise can maximize your deductions and ensure compliance," Lovison said.

How to Find a Reputable Tax Preparer

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Mature, senior and married couple and a finance manager looking at retirement, savings and investment paper work. Man and woman planning a budget for their future with an accountant, banker or broker

Tags: money , personal finance , taxes , tax deductions , small business

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5 Surprising Tax Deductions You Might Be Overlooking

T he United States tax code is rather complex, and the reality is that because of its complexity, many people don't get all of the tax deductions they qualify for. Could any of the following deductions help reduce your tax bill?

1. Medical expenses

Taxpayers can deduct medical expenses that exceed 7.5% of their adjusted gross income, or AGI. So, if you have an AGI of $100,000, any medical expenses over $7,500 can be deductible.

Read more: we researched free tax software and put together a list of the best options here

Far too many people do a quick calculation in their heads and decide their medical expenses cannot possibly be more than this amount. But you might be surprised.

Qualifying expenses don't just include obvious medical costs like doctor's bills and prescription medications. Deductible medical expenses can also include contact lenses and glasses, hearing aids (and their batteries), any medical insurance premiums, pregnancy tests, programs to help you stop smoking, and the cost of transportation to and from medical care.

In short, your medical expenses can be far higher than you might think.

2. Saver's credit

Formally known as the Retirement Savings Contribution Credit, this provides a tax credit of as much as $1,000 per year ($2,000 for couples) if you save in a retirement account like an IRA or 401(k). There are strict income limitations ($73,000 for joint filers in 2023, for example), but this can be a valuable credit.

And while this article is technically about deductions, not credits , it's important to mention that this can be used in addition to the deductions you get for contributing to retirement accounts, such as the traditional IRA deduction.

3. Home equity loan interest (maybe)

If you itemize deductions, mortgage interest is one of the biggest tax deductions available. However, the tax law says that you can deduct the interest on as much as $750,000 in qualified personal residence debt, and this doesn't include the mortgage you used to buy your home -- it can include home equity loans as well.

In order to be eligible, the home equity debt must have been used to improve, maintain, or repair your home. In other words, if you used a home equity line of credit (HELOC) to renovate your kitchen, it could qualify. If you used a home equity loan to consolidate credit card debt, it wouldn't.

4. Charitable mileage

It's common knowledge that taxpayers who itemize deductions can deduct charitable contributions. However, if you use your vehicle while contributing to a qualifying charitable cause, you can also deduct the mileage you drive at a $0.14-per-mile rate.

This may seem small, but it adds up. If you drive 20 miles round-trip to donate to your local food bank each weekend, for example, that's almost $150 per year.

5. Gambling losses

If you win money at a casino, from a state lottery, or from another type of gambling, you may receive a tax form and be required to report it.

However, many taxpayers don't realize they can use gambling losses to offset their winnings. One tip is to use a casino's players card to track your win/loss activity, and save any losing lottery tickets to have proof of losses in case you end up winning a sizable amount of money.

Not an exhaustive list

These are just a few examples of commonly overlooked tax deductions, but the United States tax code is complex, and there are plenty of others you might qualify for. Fortunately, most tax preparation software does a great job of walking you through each and every possibility.

As a final tip, if you truly want to maximize your deductions, take the time to go the long way through your tax software. Let the software ask you all of its deduction-seeking questions, even if you're fairly sure they won't apply to you. You might be surprised at what you find.

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5 Surprising Tax Deductions You Might Be Overlooking

President Biden Outlines Vision for Higher, More Complicated Taxes in State of the Union Address and FY 2025 Budget

Latest updates.

Updated to reflect the latest details in President Biden's FY 2025 budget.
Originally published following President Biden's 2024 State of the Union Address.

Last week, President Biden’s 2024 State of the Union Address presented a vision of higher taxes for American businesses and high earners combined with carveouts, credits, and more complex rules for taxpayers at all income levels. On Monday, the president released his proposed budget for fiscal year 2025 outlining how the White House would implement the president’s tax A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. vision, amounting to a gross tax hike exceeding $5.1 trillion over 10 years.

Rather than aiming for a simpler tax code that broadly encourages investment, saving, and work in the United States , the president has promised higher taxes that would decrease economic output and incomes, reduce U.S. competitiveness, and further complicate the tax code.

While the Biden budget claims to reduce deficits as a share of the economy over the next decade, that claim is based on several unrealistic assumptions, including:

No extension of the individual and estate tax An estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits , at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. cuts from the 2017 Tax Cuts and Jobs Act ( TCJA ) that are set to expire at the end of 2025, despite signaling interest in extending the tax cuts for people earning under $400,000, which would cost at least $1.4 trillion over the 10-year budget window
No extension of the administration’s proposed expansion of the child tax credit beyond 2025, which would cost more than $1 trillion over the budget window
Economic growth well in excess of what is forecast by the Congressional Budget Office ( CBO )

The FY 2025 Biden budget includes the following major changes, beginning in 2024 unless otherwise noted:

Major Business Tax Provisions in Biden Budget

Increase the corporate tax rate from 21 percent to 28 percent
Increase the corporate alternative minimum tax (CAMT) on book income Book income is the amount of income corporations publicly report on their financial statements to shareholders. This measure is useful for assessing the financial health of a business but often does not reflect economic reality and can result in a firm appearing profitable while paying little or no income tax. tax rate from 15 percent to 21 percent
Disallow deductions for employee compensation above $1 million
Quadruple the stock buyback tax from 1 percent to 4 percent
Make permanent the excess business loss limitation for pass-through businesses
Eliminate the foreign-derived intangible deduction ( FDII ) and replace it with unspecified research & development (R&D) incentives
Repeal the base erosion and anti-abuse tax ( BEAT ) and replace it with an undertaxed profits rule ( UTPR ) consistent with the OECD/G20 global minimum tax model rules
Raise taxes on fossil fuel companies and oil extraction

Major Individual, Capital Gains, and Estate Tax Provisions in Biden Budget

Expand the base of the net investment income tax (NIIT) to include nonpassive business income and increase the rates for the NIIT and the additional Medicare tax to reach 5 percent on income above $400,000
Increase top individual income tax An individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment . Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rate to 39.6 percent on income above $400,000 for single filers and $450,000 for joint filers
Tax long-term capital gains and qualified dividends at ordinary income tax rates for taxable income Taxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. above $1 million and tax unrealized capital gains at death above a $5 million exemption ($10 million for joint filers)
Create a 25 percent “ billionaire minimum tax ” to tax unrealized capital gains of high-net-worth taxpayers
Limit retirement account contributions for high-income taxpayers with large individual retirement account (IRA) balances
Tax carried interest as ordinary income for those earning over $400,000
Limit 1031 like-kind exchanges to $500,000 in gains
Tighten estate and generation-skipping tax (GST) rules
Tighten tax rules for digital assets, including cryptocurrency, and impose a new 30 percent excise tax An excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda , gasoline , insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections. on electricity costs associated with digital asset mining

Major Tax Credit A tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. Provisions in Biden Budget

Extend the American Rescue Plan Act (ARPA) child tax credit (CTC) through 2025 and make the CTC fully refundable on a permanent basis (effective 2023)
Permanently extend the ARPA earned income tax credit (EITC) expansion for workers without qualifying children (effective 2023)
Permanently extend the ARPA premium tax credits expansion
Make permanent the new markets housing tax credit and provide new tax credits for home buying and selling

Additional Major Provisions in Biden Budget

Expand federal rules on drug pricing provisions
Make permanent the exclusion of student loan forgiveness from income tax

Note : In a forthcoming update, we will estimate the economic, revenue, and distributional effects of the major tax proposals in the FY 2025 budget.

The tax changes Biden proposes fall under three main categories: additional taxes on high earners, higher taxes on U.S. businesses—including increasing taxes that Biden enacted with the Inflation Inflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “ hidden tax ,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. Reduction Act ( IRA )—and more tax credits for a variety of taxpayers and activities. The combination of policies would move the tax code further away from simplicity, transparency, and neutrality.

President Biden reintroduced his proposal to raise the effective tax rates paid by households with net worth over $100 million. The proposal requires these households to pay a 25 percent minimum tax rate on an expanded definition of income that includes unrealized capital gains. This means these households would pay tax on capital gains even if the underlying asset has not yet been sold, operating as a prepayment for future capital gains tax A capital gains tax is levied on the profit made from selling an asset and is often in addition to corporate income taxes, frequently resulting in double taxation. These taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment. liability.

The billionaire minimum tax, as it is commonly known, would increase the complexity of the tax code by using a non-traditional and difficult-to-measure definition of income. It would require formulaic rules for valuing different types of assets, payment periods that vary by asset type, and a separate tax system to deal with illiquid assets. This tax design goes well beyond international norms , where capital gains are taxed when realized and at lower rates than the U.S. in many cases.

Aiming to address Medicare’s growing budgetary shortfalls , the president would raise the hospital insurance (HI) payroll tax A payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. for those earning over $400,000 from 0.9 percent to 2.1 percent. The net investment income tax (NIIT), a 3.8 percent tax on passive investment income for those earning over $200,000 (single) or $250,000 (joint), would be expanded to include active business income. This change would raise top tax rates on labor and business income while not doing enough to put entitlements on a path toward solvency.

President Biden also committed to preserving the additional funding appropriated to the Internal Revenue Service (IRS) as part of the Inflation Reduction Act. Biden argues this would help raise revenue from higher earners who evade taxes and would also improve taxpayer services. Much of this new revenue may take time to appear as the IRS trains new staff and spends time identifying evasion and enforcing the tax law. However, the other components of Biden’s tax plan will push the code in a more complex direction, making the job of the IRS to enforce the law more difficult.

President Biden proposed to raise the corporate income tax A corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses , with income reportable under the individual income tax . rate from 21 percent to 28 percent, a policy he has pushed for since the 2020 campaign. The corporate income tax is the most harmful tax for economic growth and its many problems have led countries around the world to reduce corporate tax rates considerably over the last 40 years to an average of about 23 percent as of 2023. The U.S. had the highest corporate tax rate in the OECD prior to the TCJA, which lowered the U.S. corporate tax rate to be roughly average among OECD countries. Recent studies have determined that lowering the corporate tax rate significantly boosted investment in the United States, a long-term process that continues to yield economic benefits, including gains in workers’ wages.

Raising the corporate tax rate from the current 21 percent to 28 percent, combined with the average state-level corporate tax rate, would give the U.S. the second-highest combined corporate tax rate in the OECD, significantly worsening the competitive position of U.S. businesses and reducing prospects for business investment and workers.

US corporate tax rate proposed by President Biden Budget 2025

On top of a higher statutory corporate tax rate, Biden has proposed increasing the rate of the new corporate alternative minimum tax on book income from 15 percent to 21 percent. The tax was enacted in August 2022 as part of the IRA and scheduled to go into effect starting in 2023, but the IRS postponed its implementation because of the complexity of enforcing it . Taxpayers are still awaiting guidance on several significant questions related to the CAMT, and it remains questionable whether the tax is even feasible. It has certainly failed thus far as an effective minimum tax.

Biden also proposed quadrupling the IRA’s 1 percent excise tax on stock buybacks. Stock buybacks are one of the ways businesses return value to their shareholders. Companies can return earnings to shareholders by issuing dividends (namely cash payments) or with stock buybacks (purchasing shares of their own company). As much as 95 percent of the money returned to shareholders from stock buybacks subsequently gets reinvested in other public companies. Quadrupling the tax rate would likely discourage firms from pursuing stock buybacks, potentially tilting toward more dividend issuances instead, and could discourage investment.

As a new proposal, Biden would expand the cap on deductions for employee compensation above $1 million (Section 162m). The cap currently applies to the CEO, CFO, and the next three highest-paid employees of a corporation, and due to ARPA is already scheduled to expand to the next five additional highest-paid employees beginning after 2026.

Biden’s proposal would expand the cap to cover all employees, raising the cost of compensating employees and making it costlier for corporations to attract and retain top talent. It would mean both the corporate and individual top tax rates would apply to wages, resulting in top tax rates of 70 percent or more including state taxes. If the $1 million threshold is not indexed to inflation, over time the tax would hit more than just the C-suite.

Biden has called for several proposals to subsidize home purchases and boost the low-income housing tax credit, including a tax credit worth $5,000 per year for two years for middle-class, first-time homebuyers. The president would also offer a one-year tax credit worth up to $10,000 for middle-class households who sell a starter home to help improve starter home availability. Finally, the president proposes to provide up to $25,000 in down payment assistance for first-generation homebuyers.

Boosting demand through subsidies is likely to cause housing prices to increase further. What is needed is a greater supply of housing, which would be best accomplished at the state and local level by reforming zoning rules and at the federal level by reforming tax depreciation Depreciation is a measurement of the “useful life” of a business asset, such as machinery or a factory, to determine the multiyear period over which the cost of that asset can be deducted from taxable income . Instead of allowing businesses to deduct the cost of investments immediately (i.e., full expensing ), depreciation requires deductions to be taken over time, reducing their value and discouraging investment. rules for residential structures .

For developers, the president would expand the low-income housing tax credit (LIHTC) and create a new neighborhood homes tax credit to build or renovate affordable houses. This approach would be an inefficient way to build new homes as the existing LIHTC is expensive for the homes produced, with much of the credit value going to developers and financing agencies .

President Biden would renew the expanded child tax credit from the 2021 American Rescue Plan Act, which would raise the CTC value from $2,000 to a maximum value of $3,600 while removing work and income requirements. This CTC expansion would have major fiscal costs totaling over $1 trillion over 10 years above the current-policy CTC. If we include the underlying CTC expansion from the Tax Cuts and Jobs Act that expires at the end of 2025 , the cost approaches $2 trillion over 10 years.

In addition to the CTC expansion, the president would expand the EITC and make permanent the expanded Affordable Care Act (ACA) premium tax credits that are scheduled to expire at the end of 2025.

Finally, the president recommitted to not raising taxes on those earning under $400,000, arguing that he would fully pay for expiring TCJA individual tax changes with “ additional reforms ” that would further raise taxes on high earners and businesses. These unspecified reforms would need to total at least $1.4 trillion to cover TCJA extension for people earning under $400,000.

The president’s tax policy proposals as outlined in the State of the Union address would make the tax code more complicated, unstable, and anti-growth, while also expanding the amount of spending in the tax code for a variety of policy goals not related to revenue collection.

The White House estimates the FY 2025 Biden budget would reduce the budget deficit by $3.2 trillion over 10 years. However, this estimate does not include the cost of their intended extension of the TCJA tax cuts for those earning less than $400,000 or for the proposed expanded CTC post-2025. These tax changes alone would wipe out most of the touted deficit reduction.

The Biden budget also assumes an unrealistically high rate of growth in the economy, especially considering the large tax increases proposed on businesses and high earners that will slow growth. The budget assumes real GDP will grow at 2.2 percent annually in the last 5 years of the budget window, while the CBO assumes real GDP will grow about 1.9 percent annually over this period.

In sum, President Biden is proposing extraordinarily large tax hikes on businesses and the top 1 percent of earners that would put the U.S. in a distinctly uncompetitive international position and threaten the health of the U.S. economy. The Biden budget ignores or makes unrealistic assumptions about the fiscal cost of major proposals as well as economic growth under this plan, concealing what is likely to be a substantial cost borne by American workers and taxpayers.

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Timeline of Activity

IMAGES

Deduct Your Yacht Purchase as a Tax Write-Off
Chartering & Tax Deduction
Tax Rules That Allow Tax Deductions for Your Yacht
Yacht Crew Tax & Financial Information
How To Write-Off A $1.1 Million Yacht (Tax Strategies)
Buy A Yacht This Holiday Season And Deduct It As A Tax Write-Off

COMMENTS

Yacht Ownership's Tax Benefits: IRS 179 Deduction & Accelerated
As mentioned above, the maximum deduction for Section 179 assets purchased within 2023 is $1,160,000. This limit is reduced by the amount the purchased property costs exceeds $2,890,000. For a yacht to be eligible, it must be used for business more than 50% of the time. Multiplying the cost of the asset by the percentage of business use will ...
Yachts and Taxes: Everything You Need to Know
Sales Tax. Sales tax is paid at the time of purchase. This tax is based either on a percentage applied to a portion of the purchase price or a flat rate with a cap. Yacht owners may also be subject to a local sales tax. The sales and local tax are dependent upon the state, county, and municipality that you made the purchase.
Boat Taxes and Deductions: What Every Boater Should Know
Boat owners who live in states with personal property tax laws may be required to pay an annual tax on their vessels. These taxes, as with sales and use taxes, vary between jurisdictions and are based on the assessed value of your boat. Some states offer exemptions or credits for specific types of boats, so be sure to check the laws in your area.
The Ultimate Guide to Yacht Tax Deductions
However, under section 179 (b) (1), this deduction is capped at $1,160,000 per year (as of 2023). There's also a significant ramp down period when considering bonus depreciation deduction, with the ramp down decreasing in set percentages through your depreciation period.
Deduct Your Yacht Purchase as a Tax Write-Off
Here is a recap of the new tax provisions for writing off your boat purchase: · The boat buyer must be a business entity like an LLC, partnership, or corporation. · You can deduct the FULL purchase price of your boat or yacht. · The boat you purchase must be used for business at least 50% of the time. · The boat can be new or pre-owned as ...
Tax Rules That Allow Tax Deductions for Your Yacht
During 2020, the lowest luxury water travel limit was $760 a day and the highest was $988. Say that your yacht expenses exceed the daily limits and that you used your yacht 45 days for business transportation. At the lowest limit, your yacht deductions would be $34,200 (45 x $760). Not a bad payoff for a little tax knowledge.
Tax Rules That Allow Tax Deductions for Your Yacht
1415. Tax Rules That Allow Tax Deductions for Your Yacht. Qualifying for tax deductions on a yacht or other luxury boat requires tax knowledge. First, you need to use the yacht more than 50 percent for business transportation. Once you meet the "more than 50 percent" test, your potential tax deductions include fuel costs, insurance, repairs ...
High Seas: Understanding the Tax Implications of Superyacht Tips
Crew members of private yachts are likely getting paid in various ways, commonly: · A W-2 employee with taxes withheld. This is typical in a traditional employee situation. Taxes are withheld from your paycheck and reported to you at the end of the year on a W2. · An independent contractor. Generally, will receive a 1099 at the end of the year.
Tax strategies for yacht buyers
What does Yacht ownership have to do with tax deductions? We point out and discuss the possible merits and challenges associated with the tax implications of owning a yacht. The phrase "active yacht ownership" refers to the business strategy of purchasing a yacht and placing it into a charter program to generate income
IRS Tax Code
The Tax Benefit. Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year (the "Section 179 Deduction"). That means that if you buy (or lease) a yacht or aircraft, you may be able to deduct the full purchase price from your gross ...
New Laws Makes Buying A Yacht A Smart Tax Move
Here are some of the highlights and stipulations of the new laws: -The vessel must be used as in a business activity such as yacht charter. -The new deductions cover both new and used yachts, but only from 2018 through 2022. -The yacht must be owned by the business or yacht charter company. -New electronics and equipment used for business ...
New Tax Law Continues to Substantially Benefit Yacht Owners
The Tax Cuts and Jobs Act of 2017 (TCJA)—a sweeping tax reform—included new beneficial provisions that proved quite lucrative for yacht owners and also yachts for charter that are purchased through and used for legitimate business purposes. The new bill amended the IRS codes around bonus depreciation, deductions, and expensing and is in ...
Senate Probe Casts Doubt on Harlan Crow's Yacht Tax Deductions
Senate Investigation "Casts Fresh Doubt" About the Validity of Harlan Crow's Yacht Tax Deductions. In their extensive probe, Senate investigators found evidence to suggest Crow has made ...
US Tax Laws Every Yacht Owner Should Know
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 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 ...
Yacht and Boating Tax Deductions
Yacht charter losses have consistently been disallowed by US Tax Court for lacking profit motive under Sect 183 including: Ballard v IRS 1996, Magassy v IRS, 2004, Lucid v IRS 1997, Hilliard v IRS 1995, Courbois v IRS 1997, and Peacock v IRS 2002 and lack of material participation under Section 469(c) including Oberle v IRS 1998 and Goshorn v ...
Which Us Tax Laws Can Yacht Owners Benefit From?
19th October 2020. In 2017, the US passed The Tax Cuts and Jobs Act (TCJA), which was a beneficial tax reform for yacht owners and the yachting industry as a whole. The changes to The Tax Cuts and Jobs Act are in effect until 2022, therefore it's vital for yacht owners (and potential owners) to take advantage of these benefits while they can.
Wyden Letter Questions Harlan Crow's Pleasure Yacht Tax Deductions
3. For each tax year from 2010 - 2022 please provide the annual income, expenses and losses reported on federal tax filings for Rochelle Charter. Please also provide a copy of Rochelle Charter's Form 1120-S (if applicable) and Mr. Crow's Schedule C and E for each tax year between 2010 - 2022. 4. For each tax year from 2010 - 2022 ...
How the Ultrarich See Huge Tax Breaks From Private Jets, Yachts
From 2002 through 2019, his tax records show, his company pulled a profit just twice. Overall, he deducted over $50 million in net losses over the years. In June 2021, Argyros' Gulfstream landed ...
Are Yachts Tax Deductible? Here's What You Need to Know
The IRS considers yachts to be luxury items and not essential, so they are not eligible for tax deductions. However, if the yacht is used for business purposes, such as chartering or renting out, then some of the expenses related to the yacht may be tax deductible. Additionally, you may be able to deduct some of the interest expenses associated ...
Chartering & Tax Deduction
Here is a summary of the tax and income benefits available to the owners of new yachts purchased and placed in charter as of 2016: Under Section 179 of the Internal Revenue Code, you can take a one-time expense deduction in the year of purchase equal to the purchase price of your yacht up to a maximum deduction of $500,000.
A galley, head… and tax deduction? Tax savings and boat ...
The tax benefits include: (1) a deduction for mortgage interest or, in the case of a boat, boat financing interest and (2) a deduction for real estate taxes or, in the case of a boat, property taxes associated with the boat. These deductions are itemized on Schedule A of an individual's tax return. With the changes resulting from tax reform ...
Things to Know About the 2022 Tax Guide on a US Documented Vessel
The maximum deduction for eligible boats has risen from $16,000 to $17,500. This is the maximum allowable deduction; extra deductions may apply if the vessel has a useful life of less than a year. Renewal Fees Have Been Waived For Owners Who File Their Taxes Electronically. New tax forms will be sent to boat owners who have documentation.
Topic no. 503, Deductible taxes
Topic no. 503, Deductible taxes. Generally, you may take an itemized deduction, subject to limitations, for certain state, local, and foreign taxes you pay even if you did not pay the tax while in a trade or business or while carrying on a for-profit activity. You deduct the tax in the taxable year you pay them. The categories of deductible ...
Home Office Tax Deductions: What Can (And Can't) You Write Off?
The Tax Cuts and Jobs Act nearly doubled the standard deduction and eliminated many itemized deductions, including unreimbursed employee expenses, from 2018 to 2025.
I'm a financial planner with 6 overlooked tax credits you could be
5. State and local tax deductions. This tax break allows you to take an itemized deduction for state and local general sales taxes instead of deducting state income taxes. At first glance, this ...
12 Often Missed Tax Deductions You Can't Afford To Ignore
The IRS has a sales tax deduction calculator online. The maximum deduction, including property taxes, and state and local real estate taxes, is $10,000. Yurii Kibalnik/Adobe
10 Small Business Tax Deductions Worth Knowing
If you opt for the standard mileage rate (65.5 cents per mile for tax year 2023), you calculate your deduction based on the miles you drive for business in a given tax year.
IRS Direct File pilot
File your 2023 federal tax return online for free, directly with IRS with the IRS Direct File pilot. You can use it if you: Live in 1 of 12 pilot states; Report only certain types of income; Claim only certain credits; Take only certain deductions File online for free with IRS Direct File. See Direct File pilot news for the latest updates.
5 Surprising Tax Deductions You Might Be Overlooking
5. Gambling losses. If you win money at a casino, from a state lottery, or from another type of gambling, you may receive a tax form and be required to report it.
Biden Budget Taxes, FY 2025
Last week, President Biden's 2024 State of the Union Address presented a vision of higher taxes for American businesses and high earners combined with carveouts, credits, and more complex rules for taxpayers at all income levels. On Monday, the president released his proposed budget for fiscal year 2025 outlining how the White House would implement the president's taxA tax is a mandatory ...

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