Would you like to own a new yacht?
Would you like to pay for it with charter income & tax savings?
Would you like to dramatically reduce your 2007 income tax bill?
If you answered “YES!” to all three questions, keep reading.

Possible Tax Benefits to buying a boat. 

1. Will a boat qualify for a second home deduction? 
Yes, if a boat has a place to sleep, a head and a galley it will qualify as a second home deduction.
2.  What does this give me?
You can write off all your interest expenses related to the boat, just as you do your primary residence.
3. What restrictions apply?
  The IRS only entitles you to one 2nd home deduction, so if you already own a home, it might benefit you to finance your boat through the equity in one of your homes

1. Can I write my boat off as a business expense?

Many of our clients do write off their boats through their business; however you would want to meet with your own accountant to insure you followed IRS guidelines. 

1. What advantage does placing a boat in an on going charter company?

There are many tax and cash flow advantages to this technique.

1. You are able to depreciate the boat (10 year accelerated depreciation MACRS)
2. Section 179 expense deduction in the year of acquisition (up to $107,000 in 2007)
3.  You are able to deduct all ordinary and necessary charter related expense (berthing, insurance, maintenance, interest etc.)
4. The boat will receive the care and management by a professional staff (varies with charter company)
5. You receive the income from Charter.
6. You and those that charter your boat will receive good training using the American Sailing Association (ASA) Training Program.
7. You will have the opportunity to dramatically reduce the time it takes to pay off your boat.
8. There will be a dramatic reduction in ownership expenses.
9. There may be an easier access to slips, an increasingly scarce commodity.

What is an Offshore Delivery all about?

For many years clients have chosen to take delivery of their boat in a location outside of California, in order to use it in a location outside of California.  One of the advantages of this practice is that the dealership is not required to collect sales or use tax (approximately 8% of the purchase price, depending on the county in which you purchase the boat).  California requires that a retailer collect or a buyer of a brokerage boat pay a sales tax on the purchase. The only exception is when a client requests, and takes delivery outside of the state.  This will keep them from paying the sales tax, but they will be liable for a Use Tax (coincidently the same amount as a sales tax) unless they follow very specific rules and did not “intend” to bring it back or to keep it out for the purpose of avoiding sales/use tax.  Below you will find a list of 8 key summary points to consider and a list of 3 attorneys’s who specialize in this type of transaction. We highly recommend using an attorney to insure you follow the intent and letter of this tax code. This list is meant as a general guideline and should not be solely relied on to make your decision to take an offshore/ out of state delivery.

1. The Purchase contracts (new or brokerage) must state that the offshore delivery as a contingency.
2. The purpose is NOT TO AVOID SALES TAX.
3. You should not keep your current slips or anything that could prove you intend to return to California.
4. California residents must keep the boat out a minimum of 12 months, while non residents must keep the boat out a minimum of 6 months.
5. The client must keep all records of usage out of the state to verify it has been used not stored. There is no specific usage amount required by the state; however we suggest you use it as much as possible.
6. The owner can not use the boat, put equipment on it until he has taken delivery out of the state.
7. After the boat has taken an offshore delivery it can be brought back into the state for repairs, retrofit or modification.  This work must be documented with work orders and the client can not use the boat for an excess of 25 hours of sailing/ motoring time during the boats return to California.   You must keep a usage log and all paperwork related to the work.  As long as you meet this provision your “out of state” time IS STILL accruing while it is in the state for repair, retrofit or modification.  This can include commissioning time if you do an offshore delivery prior to commissioning process. However you must keep good records of this fact in the event of an audit. This provision does allow you to start his usage provision earlier and give him time to work out the bugs on his boat, as long as you use it less than 25 hours.  The time it takes to deliver the boat to and from California to or from an area outside California is not included in the 25 hours.
8. Please do not short cut any of paperwork involved. Nautical Enterprises or one of the following attorneys can provide you specific paper work that will further insure you follow all of the tax code provisions.
9. California Attorney’s who are experts in this tax code and others relating to your boat purchase.
1. Bill Dysart  619 231 4844
2. Cris Wenther  858 457 3800
3. Paul Trusso  619 2262628

Below is a link to a great article published in the East Bay Times and written by Don Durant of Cruising Yachts in Alameda..

Placing a New Boat in Charter - What you need to know (.pdf)

Don't forget to check out our other yacht purchasing resources too! We have compiled a list of frequently asked questions along with a yacht purchasing checklist that we hope you will find helpful.

Disclaimer: Please check with a qualified tax professional before placing a boat into charter. This page is only to serve as a guide to placing a boat into charter. This offer is not valid with other offers and may change without notice. Please contact dealer for current details.