This article was originally published on Catamaran Guru:
Catamaran Guru has been at the forefront of developing and operating the “Yacht As A Business” concept. We have not only advocated it to our yacht-buying clients, but have
personally beneﬁted from this program. We found that most yacht owners use this program as an avenue to acquire the cruising yacht of their dreams for retirement a huge discount. Others like ourselves use the yacht charter revenue together with the business tax deductions to reduce the costs of owning a very nice yacht that we enjoy now. Whatever your reason, Catamaran Guru’s team of experts can set up your yacht charter business in compliance with tax authorities and to suit your individual ﬁnancial and personal goals.
Section 179 Deduction
People seem to think that the Section 179 deduction is some complicated tax code, but really it is not. Essentially, Section 179 of the IRS tax code allows businesses to deduct operating expenses and depreciate the qualifying equipment purchased or ﬁnanced during the tax year. Typically, when a business buys new equipment, the purchase price can be depreciated using the MACRS scale which is an accelerated depreciation schedule.
The original target of this legislation was much needed tax relief for small businesses – and millions of them are actually taking action and getting real beneﬁts. So, if you are in the market for a new yacht, the Section 179 rule should deﬁnitely be a part of your yacht-buying strategy.
According to this law, when used as part of a business, you can legitimately divert some of the taxes that you’re already paying into the sailing vessel. This in turn, creates equity in your new yacht. Therefore, buying a new yacht and placing it in charter service as a business, makes total sense to reduce cost of ownership and turn tax advantages into an investment. It is vitally important the business is set up correctly and the operation is structured to qualify for the tax beneﬁts and remain in compliance going forward.
The PATH ACT passed in December of 2015 was made retroactive for the 2-015 tax year, making the Section 179 deduction for 2015 $500,000. In addition, the 50% Bonus Depreciation was reinstated.
- Once you have selected a yacht to purchase, Catamaran Guru can help you set up your “Yacht As A Business”. This will ensure all allowable business tax deductions and other tax advantages as well as the yacht charter income will largely cover the cost of boat ownership
- This program is designed for ﬂexibility to enable the owner to choose various yacht models and layouts including owner suite, upgraded equipment, multiple worldwide locations and ﬂexible owner use
- In our experience, yacht charter management together with active participation by the owner is a great way to reduce the cost of yacht ownership. It is the perfect opportunity for anyone looking to buy a new yacht at a substantial discount!
- This program offers the least expensive alternative to own a boat, period
- What is Section 179 business tax deduction and how does it affect you?
Understanding Section 179 Business Tax Deduction
Section 179 Tax Deduction Limits for year 2016
2016 Deduction Limit: The Section 179 Deduction is currently $500,000. Businesses can deduct the full cost of equipment from their 2016 taxes, up to $500,000.
2016 Limit On Equipment Purchases: This is the maximum amount that can be spent on equipment before the Section 179 Deduction available to your company begins to be reduced. The “total equipment purchased for the year” threshold is $2,000,000.
Bonus Depreciation: 50% for 2016: Bonus Depreciation is generally taken after the Section 179 Spending Cap is reached.
Note: Bonus Depreciation is available for new equipment only.
FYI: The PATH ACT passed in December 2015: The Act was made retroactive for the 2015 tax year, making the Section 179 deduction for 2015 $500,000. In addition, the 50% Bonus Depreciation was reinstated.
Example Of Section 179 At Work For 2016
To take advantage of the current deduction and any retroactive raise, you must purchase the equipment and be placed into service by 12/31/2016. Form 4562 covers this deduction.
- Equipment Purchases – $650,000
- Section 179 Deduction: – $500,000
- Bonus Depreciation: Deduction: currently 50% – $75,000
- Normal First Year Depreciation – $15,000
- Total First Year Deduction – $590,000
- Cash Savings: assuming a 35% tax rate – $206,500
- Lowered Cost Of Equipment After Tax Savings – $443,500
*The above is an overall, “simpliﬁed” view of the Section 179 Deduction
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