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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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How to avoid paying taxes on your boat…legally!
Eds. Note: This article originally appeared in the Waterway Guide as a feature for cruisers. http://www.waterwayguide.com/resources.php . Updated to reflect Maryland’s cap – more here .
Dirk Schwenk, Esq., is a real estate and maritime attorney located in Annapolis, Maryland. If you are interested in his non-tax practice, please see Baylaw, LLC . For issues specific to waterfront property, please see Waterfrontlaw .
In my last article, I wrote about Maryland, specifically Maryland’s boat tax, and while Maryland and the Chesapeake are fantastic cruising grounds, I do recognize that there are other states in the Union. Since many of you readers and many of my clients venture out in the world-visiting far flung locales from Maine to Florida, the Caribbean and far beyond-I am often asked about the tax implications of other jurisdictions. I take these inquiries to mean:
How can I legally avoid paying taxes on my boat?
There is of course no simple answer to the question. If there were, the tax authorities would close it. That’s what happened in the good old days when it was pretty safe to register a boat to Delaware, place it in Coast Guard documentation, and call it good.
After reading this, many folks will just want to buy their boat, pay the tax, and go cruising, and that’s great. Many boat taxes support boating related activities and needed facilities. Others purchasers, however, plan to leave the country, or keep the boat moving for a long time, and perhaps have a higher threshold for risk. Paying sales tax may not be desirable or necessary, and they may be willing to do what is necessary to organize their boating life in a way that is not subject to tax.
This article is the first step, and the easiest step in that direction.
Before we get into specifics, however, let’s go back to the beginning. What kind of tax are we talking about and who collects it? There is no federal vessel tax (and may the federal luxury tax stay good and dead!), so taxes are imposed at the state and local levels. Generally, there are three taxes of concern to boat owners: sales tax, use or registration tax, and personal property tax. Sales tax is imposed, if at all, at the time of purchase. Use tax is imposed by sales tax states on goods that were not taxed at the time of purchase. Personal property tax is an annual tax, payable every year, on property that is kept within a jurisdiction. This article will focus on sales tax.
It is hard to keep track of all of the state taxes, and nearly impossible to keep track of all of the county and municipal taxes. Not only are they all different, but they also all subject to change. BOAT/US provides a good general comparison of state taxes on its website www.boatus.com/gov/state_boat.asp but I understand that it is being updated now after several years without revision.
Below is a table that gives the bare-bones of the state taxes in the East Coast cruising grounds as they exist at the moment (revised 2016). It does not include many defenses, exceptions, exclusions, penalties, interest on late payments, and any number of other important details, nor is it legal advice, but it does provide a rough snapshot of the tax on the purchase of a boat.
| 2% | No | |
| 6% | No (but higher registration fees) | |
| No | No | |
| No | No | |
| 6% | No | |
| 4% + local | Yes | |
| 5% (2013 Edit — at least temporarily, MD is capped. ) | No | |
| 5% | Yes | |
| 5% | Yes | |
| $10 to $1761.40 depending on size and propulsion with some exemptions | No | |
| 3.5% Capped in 2016 at $20,000 | Yes | |
| 8.25% most counties Capped at $18,975 | No | |
| 3% with $1,500 cap | Yes | |
| 6%-7% | No | |
| No | No | |
| 5% with $300 cap | Yes | |
| No | No | |
| 2% capped at $2,000 | Yes |
Mr. Schwenk provides representation in purchase, sale and tax and also buyer’s broker (selling broker) services to select clients. It is strongly recommended that you do not enter into a contract with dual agency (one broker as both listing and selling broker). If you would like buyer’s representation – please email with the heading “Baylaw Buyer’s Broker” or use this link: [email protected]
To return to the question-How can I legally avoid paying taxes on my boat-the middle column is the key. Sales tax is the tax on a purchase or transfer of a boat. If you want to avoid sales tax, the easiest option is to finalize your purchase in a jurisdiction that doesn’t tax the sale or caps the tax at a low number. This may mean driving to Delaware and choosing a boat at a Delaware dealer.
There are more sophisticated strategies as well, such as writing a contract that requires a Massachusetts boat to be purchased through a transaction that takes place New Hampshire. Or taking final possession and completing the purchase of a boat in international waters-this is where most of the big boats go. These latter items have their risks, however, particularly the fact that they make local tax authorities suspicious, even if the transaction is properly done. It does not help matters that some unscrupulous purchasers will fake an out-of-state or international transaction, and thereby paint legitimate purchases in a bad light.
Another very good option to avoid initial sales tax is to identify an escape clause in your local tax jurisdiction. In Maryland, for example, one need not pay sales tax on a boat that files a certification stating that it is going to leave the state within 30 days of purchase. Similarly, in Florida, a non-resident need not pay tax if the boat is taken to a different state shortly after purchase. If you anticipate taking your boat out of the country, using it in a state that does not have a sales tax, or actively cruising between lots of jurisdictions, avoidance of paying the initial sales tax can be a big cost savings. If nothing else, a boat can depreciate a good deal over the course of a few years.
I stated above that this article would address the first step in legally avoiding tax on a boat. Well, that was it. The first step is to legally avoid sales tax. Anyone that has been around boats, however, will recognize that this is just the beginning. Most sales tax states have two other closely related taxes, title tax and use tax. Use taxes were devised to take the profit out of going across state lines to purchase products, which is exactly the conduct we’re talking about here.
Use tax is usually imposed at the same rate as sales tax and is imposed when you bring the boat back into a state. Use tax must be of primary concern to anyone that has not paid sales tax. (If you have paid sales tax to a state however, you can rest easy, as sales tax is an offset to use tax). For Marylanders, use tax is the tax that a buyer will face on the boat purchased in Delaware and brought home on a trailer.
Future installments of this Waterway Law column will address use tax and personal property tax. These taxes are more complicated in their application than sales tax and take much more sophistication to legally avoid. Use tax is triggered by the use of the vessel and is subject to lots of argument about how much time triggers the tax as well as exceptions and defenses. Personal property tax is often collected by local counties or cities, and so it can be widely different even within a single state. There are no simple answers here.
In the meantime, if you are buying or have purchased a boat for a significant amount of money, you should seek specific legal advice about how to conduct your affairs. Avoiding sales tax is only the first step, but if done improperly, can bring far worse consequences such as penalties, interest, liens, etc. A good lawyer can provide advice about how to maintain your boat in a situation in which it does not owe tax, and if you follow that advice, you can save a significant amount of money.
Happy cruising!
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Boat Taxes and Deductions: What Every Boater Should Know
Whether you are a recreational boater, a liveaboard, or a commercial vessel operator, taxes are an essential aspect of boat ownership to consider. Navigating the ins and outs of boat taxes and deductions can be confusing, but understanding the basics can save you money and potential headaches. In this article, we will cover various tax implications, eligible deductions, and provide tips to help you make the most of your boat-related tax situations.
Sales and Use Tax
Most states in the U.S. impose a sales tax on the purchase of boats, which is generally calculated based on the purchase price. Rates vary by locality, and certain states may also charge a use tax if you plan to use your boat within their waters. The use tax is applied in the absence of sales tax or when sales tax paid in another state is lower than the use tax rate in the state the boat is being used in. Be sure to research the specific tax requirements in your state or locality, as these laws can change frequently.
Personal Property Tax
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.
Federal Income Tax Deductions
Many boat-related expenses can be deducted on your federal income tax return, which helps offset the costs of ownership. Some of these deductions may include mortgage interest, business-related expenses, and even educational costs associated with boating.
Mortgage Interest Deduction
If your boat qualifies as a second home, you may be able to deduct the interest paid on your boat loan. To qualify, your boat must have a sleeping area, a toilet, and cooking facilities. It is essential to keep detailed records of these expenses and check the latest guidelines from the Internal Revenue Service (IRS) to ensure your boat meets the requirements.
Business Expenses
If you use your boat for business purposes, such as chartering, you can deduct various expenses, including maintenance, slip fees, fuel, and even depreciation. It is crucial to keep detailed records of your expenses and usage to substantiate your deductions if you face an audit. Consult a tax professional to ensure you are maximizing your deductions while complying with tax laws.
Education Expenses
Boater education can sometimes be tax-deductible, depending on the nature of the education and its relevance to your job or business. For example, the cost of a Coast Guard Captain’s License course is often tax-deductible for those who use the license for business or employment purposes. Be sure to consult a tax professional to determine if your boating education expenses qualify for a deduction.
Local Fees and Taxes
In addition to the taxes mentioned above, there may be local taxes and fees to consider, such as registration fees, marina taxes, and waterway access fees. These costs will vary depending on where you use and store your boat, so be sure to research the requirements in your specific location.
Tax Tips for Boaters
Keep Detailed Records
Maintain accurate records of all boat-related expenses, including receipts and invoices, to substantiate your deductions and prevent potential issues during audits.
Consult a Tax Professional
Tax laws can be complicated, and every boater’s situation is unique. Engage a tax professional who is familiar with marine-related tax laws and deductions to ensure compliance and maximize your savings.
Plan for Tax Season
Be proactive in your tax planning by understanding your boat-related tax obligations and preparing for any potential tax liabilities.
Boating is a cherished pastime for many and knowing the tax implications associated with boat ownership can save you money and avoid potential compliance issues. By understanding the various state, federal, and local taxes that apply to your boat, taking advantage of eligible deductions, and following best practices for tax planning, you can enjoy your time on the water while keeping Uncle Sam happy.
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Are Sales And Use Taxes Avoidable On Your Boat?
- By Raleigh P. Watson
- Updated: May 6, 2019
One of the most common questions maritime lawyers receive from potential clients is how to avoid sales tax on a boat. Unfortunately, every jurisdiction has different regulations, and they are always subject to change. Oftentimes, there is no reasonable way to avoid paying tax on a boat, especially if you plan to purchase and use a boat in one specific state that does have a sales tax. Nevertheless, there are circumstances in which legally avoiding sales and use taxes is a real possibility.
Sales Tax Versus Use Tax for Boats
Sales and use taxes on vessels are imposed at the state and local levels. Sales tax is imposed at the time of purchase or transfer; use tax is imposed at the same rate as a state’s sales tax, but it is imposed on boats not taxed at the time of purchase. It can be paid at the time of registration in a state other than where a boat was purchased, or it can be triggered by the use or storage of a boat for a certain amount of time in a given jurisdiction. Each state has its own rules as to how long a boat registered elsewhere can be within its jurisdiction before triggering use tax liability.
How to Avoid Sales Tax on a Boat
There are several options as to how a buyer can avoid sales tax. Of course, the simplest method is to purchase a boat in a nontaxing state, such as Delaware or Rhode Island. But let’s be honest, understanding boat taxes by state is a lot to ask for when buying a boat. Although it may be helpful knowledge if the buyer also plans to store and use the boat in that state.
In some jurisdictions, there might be an escape or removal clause in a state’s statutes. These clauses often require the buyer to submit a removal affidavit: The nonresident buyer must certify the boat will be leaving the state within a certain amount of time. A buyer can also be required to submit proof of departure (fuel or dockage receipts) and registration in another jurisdiction; they can also be prohibited from taking the boat back for a certain amount of time. The process is relatively straightforward, but it is imperative the guidelines are followed. A state’s taxing authority will have little sympathy for those who fail to follow its rules.
An offshore closing is another option for buyers who wish to avoid sales tax, especially when dealing with boats of considerable value or for owners who plan to travel constantly or register the boat in a foreign location. This type of transaction is a bit more complex and requires the parties to close offshore, outside the state’s waters. If practical, we often recommend an offshore closing over a removal affidavit because it eliminates the need for paperwork to be submitted and keeps the buyer off the state’s radar.
Additional Helpful tips
Avoiding sales tax where a boat is purchased is simply the first step in the process. Some states have an annual property tax on boats, which can be more expensive than sales and use taxes over an extended period of time. Additionally, use tax can be a complex and perpetual battle for those boats that spend time in multiple jurisdictions where it is not tax-paid. Buyers should be aware that most states require the applicable tax payment at the time of registration. Thus, a buyer can avoid tax at the time of purchase, but tax will still be owed if the boat is ultimately registered in a taxing jurisdiction.
The good news is most taxing authorities will provide a credit for sales tax paid to other states so long as the owner can provide proof of payment for the vessel in the form of a receipt or closing statement signed by a dealer or broker.
This is an elementary overview when it comes to sales and use taxes of boats, and there are many presumptions, exceptions, clauses and penalties that this article simply cannot cover. We routinely advise clients on how best to handle the taxes associated with their boat, and sometimes attempting to avoid sales and use taxes simply isn’t practical. In other situations, avoiding sales and use taxes is not only possible, it can save an owner a significant amount of money. Regardless, every boat buyer should be educated on the relevant rules and regulations.
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Buying a Boat
Do I Owe Taxes on My Yacht?
Boat Buying Process
This post is the beginning of a new series of articles from The Moorings Yacht Brokerage consisting of common customer questions. If you can't find the answers here contact one of our Brokerage Agents who are always happy to assist. In this article we find out what taxes are owed once a used boat is purchased from The Moorings. Taxes are a confusing subject and are dependent on several variables but our agents are well versed in the area and will help you navigate through these murky waters so buying your pre-owned yacht is that much simpler.
Will I owe taxes on my yacht purchase?
Whether or not you owe taxes at the time of purchase depends on where you plan to take the boat after closing. Many of the yachts we sell out of charter service are located in the Caribbean and we do not collect sales tax on the purchase at the time of closing. However if you are a Florida resident and bringing the boat back to Florida we can collect the tax at the time of closing and save you the hassle of dealing it upon your return. Florida charges a 6% sales tax, capped at $18,000, plus any applicable county surcharges.
If you do not bring the boat back to the US and begin your cruising immediately we will not collect any taxes at the time of sale. It is always recommended to check with your local municipality to find out about any applicable taxes in your particular instance.
More information here on Florida sales & use tax: http://floridarevenue.com/Forms_library/current/gt800005.pdf
What is the difference between import duty and sales tax?
As the majority of the yachts we sell are built outside of the US an import duty of 1.5% of the yacht’s value, based on the sales price, will be due when it reaches US waters. US waters include the territory of Puerto Rico, but not the USVI.
A boat can be registered or US Coast Guard documented yet never have been to US waters. Therefore import duty would still be due.
Sales tax is due to your local state, and is based on the value of the sale.
We recommend the use of an import agent to streamline the process with US customs for the import duty payment. Contact an agent for referrals.
What does “tax not paid” mean on some of your yacht listings?
Tax not paid refers to European VAT, which in general does not affect US or Canadian buyers in the Caribbean. If you are looking to buy a boat in the Mediterranean or the Exotics we also have a full service brokerage based in Nice, France that can assist with specifics to those markets.
Can I get out of paying taxes?
If you are a US buyer purchasing a boat in the Caribbean and do not bring the boat back to the US it is likely you will not be liable for sales tax at the time of purchase.
We always recommend checking with your local municipality if outside of the state of Florida, or with your personal tax advisor for your specific situation.
If I form an LLC can I avoid taxes?
No, the tax man cometh. There may be some tax advantages when you sell the yacht based in an LLC corporation, however it is best to consult your tax professional to help with that.
Still have questions about taxes? Contact a broker today, or see our boat buying guide here: https://www.mooringsbrokerage.com/moorings-yacht-brokerage-used-boat-buying-guide
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Boat Taxes: Everything You Need to Know
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Last Updated on September 28, 2023 by Boatsetter Team
Taxes are a fact of life as well as a part of boat ownership but there may be some good news, especially in certain purchase situations and if you use your vessel as a second home or as a business. Regardless of how you buy or use your boat, brush up on the details of boat taxation to comply with federal and state laws.
Post summary:
Property tax
Boat used as a second (or primary) home deduction, boat used for business deduction, boat used for transportation deduction, boat used for charter deduction, boat donation deduction.
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When you buy a boat , you’ll most likely be paying a sales tax like you do on any other products you purchase. There are exceptions and they vary by state. You can avoid paying sales tax in the states that don’t assess sales taxes (Oregon, Delaware, and others) or if you’ll use your boat in states with a sales tax but only for short periods. Even if you bought your boat in a state without sales tax (say, Oregon) but go boating in a state with sales tax (say, Washington) you may be assessed a use tax by the state of Washington.
You may take possession of your boat via an offshore delivery which means you sign ownership papers outside of the state or its territorial waters. However, you must then keep the boat out of that state, for at minimum a year. Not all states have a provision for offshore delivery so do your research and remember that this proposition makes sense if one) you’re ready to not boat in the state where you bought the vessel or 2) if the boat is expensive enough (with a significant sales tax value) where commuting to it for a year makes sense. You may need proof of the offshore process in case you’re audited so keep good records.
As with homes, property taxes are assessed on boats. Additionally, some states require their marinas to pay taxes and they in turn pass this burden on to boat owners. You may in effect, be paying taxes on the water in your slip. There are no loopholes for boat property taxes.
A boat can qualify as a first or second home as long as it has sleeping accommodations ( berth ), a bathroom ( head ) and a kitchen ( galley ). You can take a mortgage interest deduction if your boat is financed and a home office deduction if you work from your boat. You’ll need to do itemized taxes and file IRS Form 1098.
If you use your boat to entertain clients, you can qualify for a deduction so long as “business was discussed” during the time it was used in this manner. You must keep thorough records of when, where, how long and with whom you boated and then you can deduct up to 50% of the expenses incurred during that outing including fuel, additional mooring or berthing fees, entry fees (for fishing tournaments or regattas, for example) and food/beverages.
READ MORE: Boatsetter Fishing Tournaments Sponsorship Program
Let’s say you live on an island and you use your boat to commute at least half the time for work or business. You can deduct quite a few expenses including slip fees, fuel, insurance, maintenance and repairs, and crew costs. This is an “or” use meaning that it won’t be possible to claim this deduction if you use the boat to entertain clients and use it for transportation.
If you charter your boat with a peer-to-peer (P2P) marketplace like Boatsetter, you may be able to deduct some costs of ownership but there are stipulations.
First, the costs you can claim: equipment and purchases and upgrades, slip/mooring fees, fuel, maintenance and depreciation. Now the requirements: you must show a profit at least three years out of every five and you can only deduct the percentage of the above costs that the boat was chartered. You can’t deduct all of it if you’re using the boat for your own recreation as well.
Pro tip : Keep meticulous records, you’ll be taxed on your income at a state and federal level, and you may need to upgrade to commercial boat insurance to conduct a charter business so do the math to make sure it’s worth it.
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When it comes time to dispose of your boat, you can donate it to charity instead of selling it. In this case, you can deduct the “fair market value” for which you’ll need a professional appraisal and survey (which costs money). The charity must be not-for-profit. The benefits are 1) not having to find a buyer and 2) transferring the boat fairly quickly with the charity processing the paperwork and providing an IRS Form 1098-C. If the charity sells the boat, you can only claim a tax deduction equal to the sales price, not your initial appraisal.
Taxes are fluid and tax laws change not only by jurisdiction but also over time. For complex issues that may involve significant amounts of money, keep thorough records and consult your CPA or a maritime attorney because boat deductions tend to raise red flags. Once you have it figured out, you’ll be able to deal with the taxman like a champ.
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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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What Boat Buyers Should Know About Florida Sales Tax Law
- What Boat Buyers Should Know…
Are you familiar with Florida’s sales tax law? If you’re a boater, you’d probably rather be out cruising on the crystal-blue Florida waters than thinking about taxes. That said, it’s great to be a boat buyer in Florida. Nine years ago, Florida implemented a tax cap on boat purchases that is still in effect today. That’s good news if you’re in the market for a vessel! Below, we’ll go into more detail about how you can benefit from the current regulation.
Current Tax Law & How You Can Benefit
Currently, Florida has a sales and use tax for boats which is set at 6% of the purchase price. However, Florida caps the total tax amount due on a vessel at $18,000. This tax cap law went into effect July 1, 2010, and is still in effect today. If you’re in the market for a boat valued at $300,000 or more, you can reap serious tax savings on your next purchase.
Prior to this law, buyers of boats priced above $300,000 began to take their business to other states and countries with lower taxes. After years of extensive lobbying in Florida, the $18K tax cap law finally passed. Today, this law has generated significant tax revenue for the State of Florida. Experts suggest it has even helped create and protect jobs in the Florida marine industry.
Dodging Tax Laws with Offshore Registration
Before this law was passed, boat owners who wanted to enjoy Florida waters but avoid Florida’s taxes had several legal ways to do so. First, if they were non-Florida residents, they could bring the boat to another state for part of the year, then bring it back to Florida during the colder months. This worked great for sportfishers, snowbirds, and other folks who tend to migrate with seasons anyway.
Another common scenario for larger boats was registering offshore, which can be costly. In this instance, the boat owner would bring the boat back to Florida under an annual cruising permit from the U.S. Coast Guard. Under this permit, the boat could stay in Florida (or anywhere in the U.S.) for up to one year. The boat was then required to leave U.S. waters and enter a foreign port, at which point they could turn around and apply for a new cruising permit.
Who Is Benefitting from the Changes
So far the $18K tax cap has been a positive change for the State of Florida. There have been a range of benefits for the state of Florida, Florida residents and the marine industry. For one, the State of Florida has seen an increase in tax revenue since the law has passed. This includes tax revenue on boat purchases, but also on boat products, services and even the tourism industry.
Boat brokers have seen a major jump in boat sales since the law’s passing. Marinas and marine workers have also benefited, as there has been an increase in boats coming and staying in Florida that would not otherwise do so. The law has also encouraged boat owners to operate and keep their boats in Florida for longer periods of time. With more boaters spending time in the area, there has been an increase in marine products and services.
Additionally, the tourism industry in Florida has seen the benefits as tourist dollars have increased since the law’s passing. Boat owners spending time in Florida tend to enjoy local restaurants, breweries, hotels and transportation services.
All in all, the $18K tax cap has been a benefit to boat buyers and boat sellers alike. If you plan on making a boat purchase at or above $300,000, Florida is a great place to do so with this generous tax law in place.
MacGregor Yachts – We’ll Help You Navigate the Tax Law
Ready to take advantage of this sales tax law to save on your next boat purchase? Let us be your guide. Give us a call today at (561) 799-6511 or contact us on our website!
Ready to take advantage of the Florida sales tax law for boat buyers? Contact MacGregor Yachts today. We’ll help you navigate the law and find the right vessel for you!
Author: MacGregor Yachts Team
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Yacht Sales Contracts, Boat Taxes and Duties: Basic Tips
Creating sales documents for catamaran sales.
Whether you buy a brand new catamaran or a used catamaran directly from the owner, the best way to protect both parties is to put the terms of the sale in writing. This eliminates problems that could later turn a seemingly simple deal into a nightmare. A legal document will clearly list the intentions of the buyer and seller by outlining the obligations of each party, as well as spelling out the obligations and time frame for each party involved.
Basic Catamaran Purchase & Sale Contract Terms
Sales agreements or contracts should include the following information:
- Names and addresses of buyer and seller
- Complete description of boat and engine including make, model, year, as well as hull-identification number (HIN) and engine serial number(s). A complete equipment list is a must. If there’s a trailer, include its serial number, as well.
- The purchase price including a description of any deposits paid by buyer and how the balance will be paid (for example, wire transfer, certified check, etc.)
- A firm delivery date describing when and where the boat will be delivered and the deal finalized.
- The boat’s condition at the time of delivery, including a complete list of the accessories and items that convey with the boat.
- A full description of any warranty from the dealer or manufacturer. When boats are sold in “as is” condition, recourse may be impossible if problems arise
- Buyer’s contingencies: Spell out that the sale hinges on a satisfactory survey and sea trial and the ability to obtain acceptable financing and marine insurance
- A statement that the boat is free of all liens and encumbrances.
Boat Sales, Use & Property Taxes
Every state and county has different regulations and they are always subject to change. We use the state of Florida as an example here, but it is important to check with your own state offices to determine what taxes you might owe. However, there are usually three kinds of basic taxes, no matter what type of boat you buy.
1. Sales Tax
Sales taxes are imposed at the time of purchase or transfer. There are non-taxing states, such as Delaware or Rhode Island. In states like Florida, the state sales tax rate is usually 6 percent plus any applicable discretionary sales surtax. In Florida, the maximum tax of $18,000 applies. See Florida Revenue State and Use Tax for Boat Owners/Purchasers .
In some jurisdictions like Florida, there may be a “removal clause” in a state’s statutes. It requires the buyer to submit a removal affidavit: A non-resident buyer must certify the boat will be leaving the state within a certain amount of time. A buyer can also be required to submit proof of departure (fuel or dockage receipts) and registration in another jurisdiction. The process is relatively straightforward, but it is imperative the guidelines are followed. If a boat owner decides to move his or her boat from one of the five states without a general sales tax (Alaska, Delaware, Montana, New Hampshire, and Oregon) to another state, when the vessel is registered in the new state, it will trigger the sales tax due.
An offshore closing is an option for buyers who want to avoid sales tax, especially when dealing with boats of considerable value or for owners who plan to travel constantly or register the boat in a foreign location. Read more about tax and legal considerations for buying a yacht outside the US .
Many state tax agencies aggressively look for boaters who don’t pay sales tax and may try to collect the equivalent use tax on boats if they have been there from 30 to 180 days. California and Maryland among others will search ownership records and even inspect marinas for out-of-state boats.
Some states are more boater-friendly than others for sales taxes:
- Florida caps the amount of boat sales tax at $18,000.
- Rhode Island has no sales tax on boats.
- North Carolina’s boat sales tax is 3% and capped at $1,500.
- Connecticut sales tax is 2.99% on boats.
- New Jersey is 3.5% and capped it at $20,000.
- Alabama is 2% but has no cap.
- New York sales tax applies to only the first $230,000 of a boat’s purchase price.
- Maryland caps tax at $15,000 on boats.
- Virginia the boat sales tax is 2% and capped at $2,000.
Use tax is imposed on boats not taxed at the time of purchase at the same rate as a state’s sales tax.. Use tax may be paid at the time of registration in a state other than where a boat was purchased, or it can be triggered by the use or storage of a boat for a certain amount of time in a given county. Each state has its own rules as to how long a boat registered elsewhere can be within its jurisdiction before triggering use tax liability.
3. Property Tax
Some states like Virginia have an annual property tax on boats which can be more expensive than sales and use taxes over an extended period of time. Property tax can be a complex battle for those boats that spend time in multiple jurisdictions where it is not tax-paid.
This elementary overview of sales and use taxes on boats does not present all possible presumptions, exceptions, clauses, and penalties. It is simply impractical to cover it all here. Consult with your yacht broker, CPA, and / or attorney.
Importation & Federal Duty
Once a value has been placed on a vessel, the customs agent can calculate the exact cost of duty that will be due and provide the owner of the boat with an invoice and instructions on how to make payment to complete the importation of the vessel.
If your boat has never been imported into the US, you will have to do the importation and pay the Federal Duty. Duty is calculated at 1.5% x the value of the yacht and other miscellaneous fees. Once the Duty has been paid, you will receive US “Entry Summary” or CBP Form 7501, which shows Duty has been paid on the vessel and allows the vessel to cruise freely in US Waters as a Duty Paid vessel.
Here are two great articles:
- yacht import duties article by attorneys
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How Much Is Sales Tax On A Boat In Florida? [Cost Comparision]
![How Much Is Sales Tax On A Boat In Florida? [Cost Comparision]](https://cdn.denisonyachtsales.com/wp-content/uploads/2019/07/How-Much-Is-Sales-Tax-On-A-Boat-In-Florida.jpg "yacht sales tax")
July 26, 2019 12:55 pm
What boat buyers should know about florida sales tax.
If you are looking into the costs of purchasing a boat, you are in the right place. Taxes are an inevitable cost to factor in when budgeting your boat purchase.
Sales taxes and caps vary in each state. Some might be a little more and others a little less, but Florida has a flat sales tax rate of 6%. Depending on which county the boat is delivered to, Discretionary Taxes come into play.
Those prices range from 0.5%-1.5%, but cap at $5,000. If you are looking into a superyacht purchase, the cap for sales tax in Florida is $18,000.00.
A few other popular boat-buying state’s taxes are:
California: Varies between 7% to 9% on purchase depending on homeport, plus personal property tax may also be due. Find your CA Rate by address or by location . Connecticut: 2.99% Delaware: 0% Florida: 6% state tax plus 0.5% to 2.5% surtax on the first $5,000. Find your FL surtax rate here. Illinois: 6.25% Maryland: 5%, with a tax cap of $15,400 Michigan: 6% North Carolina: 3%, with a tax cap of $1,500 New Jersey: 3.5%, with a tax cap of $20,000 New York: Varies between 8% to 10% depending on homeport . Find your NY rate here . Rhode Island: 0% South Carolina: 6%, with a tax cap of $500 Washington: 10.1% primarily, however, some cities may be less.
Contact your Denison broker today for a more accurate estimate on your boat’s sales tax.
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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.
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).
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SAVE SALES TAX WHEN PURCHASING AN LLC-OWNED VESSEL
As you stroll through the docks looking for your dream yacht, you may have noticed many boats listed as “LLC Owned”. What’s the deal with that?
The answer is that by purchasing the LLC that owns the boat rather than making a purchase of the boat itself you can save a significant amount of money by avoiding California’s sales or use tax.
The State of California imposes a sales tax on purchases of personal property, including boats, collected by and through County Tax Assessors. California imposes a sales tax on the purchase of a new boat and a “use” tax on the purchase of a used boat.
A purchase of all or part of a business entity, however, is exempt from such taxation in California and in all other states. The purpose for such an exemption is to encourage economic growth. Wall Street would shut down if sales tax was imposed every time a stock, bond, or LLC membership interest was purchased.
California sales and use tax in San Diego County, effective April 1, 2019, is 7.75%. On a $500,000 boat that equates to a significant tax of $38,750. Thus, buying the membership interest of an LLC with its sole asset of a $500,000 boat saves $38,750 in taxes.
When the business entity is the owner of the boat there is no change in the title or ownership of the company’s asset, in this case, the boat. The only change in ownership is that of the LLC. Since the boat is still owned by the LLC there is no purchase or sale of the boat itself, and as such, no assessment of sales or use tax on the boat.
Keeping the boat in an LLC makes sense for a variety of reasons including liability protection if you put the boat out to charter, use it as an Airbnb, your office, or for commercial endeavors or for other tax deductions depending on its use, not to mention maintaining resale value.
A California LLC pays a minimum $800 payment to the Franchise Tax Board whether or not the LLC makes any profit.
The County of San Diego also assess a boat owner (in this case the LLC) a property tax of approximately 1.1%. Ownership is determined by whoever owns the boat on January 1 of each year.
As with the purchase of any business entity, you should have your attorney prepare a non-binding letter of intent with your proposed terms. You should also conduct a thorough due diligence to ensure the LLC has no liabilities or liens; understand any contracts the LLC has entered into, such as a slip lease, insurance, etc.; and review the LLC’s Operating Agreement and financial account records prior to the purchase.
Once you are have conducted your due diligence and you have agreed upon terms, your attorney should draft a Purchase Agreement for the LLC. Of course, the agreement should be contingent upon purchaser’s acceptance after a sea trial, haul-out, marine and engine survey and report. Once the LLC is purchased you will need to notify the California Secretary of State of the change in ownership of the LLC and of the any new domestic Statutory Agent for Service of Process. You will also want to open a financial account in the name of the LLC and purchase insurance in the name of the LLC. It is also likely you will need to have the LLC’s Operating Agreement re-written. You may change the name of the LLC as well by filing the name change with the California Secretary of State.
In sum, balance the tax savings against the administrative responsibilities when deciding whether to purchase a boat that is “LLC Owned.” If you are inclined to purchase an LLC which owns a boat as its sole asset, you should consult an attorney familiar with the intricacies involved early in the process.
Mike Wales is a California-licensed attorney and co-owner of AGL Yacht Sales, Inc., along with his wife Leilani Wales, a licensed CY. You may contact Mike at [email protected] or at 480.250.5651.
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If you owe the IRS estimated taxes, Monday is the deadline
Ask the expert: tips for filing taxes.
The tax filing deadline is just a couple days away. LiveNOW from FOX's Andrew Craft spoke with Marketwatch's Andrew Keshner for tips if you're filing last minute.
WASHINGTON - The IRS is reminding taxpayers whose income is not subject to withholding that an estimated tax payment deadline is fast approaching.
Monday, June 17 is the payment deadline for second quarter estimated taxes.
Here’s what Americans should know in order to avoid potential penalties in April 2025.
Do I need to pay estimated taxes?
FILE - An IRS 1040 Individual income tax form for 2021 arranged in Louisville, Kentucky, on April 12, 2022. Photographer: Luke Sharrett/Bloomberg via Getty Images
Americans must pay taxes as they go throughout the year — either through withholding or making estimated tax payments.
Many people paid by an employer typically have their federal and state taxes withheld directly from their regular paychecks. However, millions of people earn income through freelance work, owning their own business, or are otherwise self-employed, where taxes aren’t withheld.
Generally, the IRS says "sole proprietors, partners and S corporation shareholders must make estimated tax payments if they expect to have a tax liability of $1,000 or more when they file their return."
For those who fall into this group, taxes are paid on a quarterly basis to avoid falling behind and facing possible underpayment penalties, the agency says.
The IRS Interactive Tax Assistant is an online tool that allows taxpayers to see if they are required to make such payments. Americans can also see the worksheet in Form 1040-ES, "Estimated Tax for Individuals ," for more information on who is required to pay estimated taxes.
IRS estimated tax payment dates
The second quarter deadline to pay estimated taxes is Monday, followed by the third quarter payments due Sept. 16, 2024.
The final estimated tax payment for tax year 2024 is due on Jan. 15, 2025.
Avoiding IRS underpayment penalty
To avoid an underpayment penalty in April 2025, Americans should pay most of their taxes during the year – owing less than $1,000 when filing their return.
"Generally, for 2024 that means paying at least 90% of the tax owed on their 2024 return, or at a minimum 100% of the tax shown on their year 2023 tax return," the agency stated .
This story was reported from Cincinnati.
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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.
New Yorkers, for instance, pay sales tax on only the first $230,000 of a purchase price—or 8.25 percent, in most counties. When it comes to flat rates, the North Carolina sales tax on boats is 3 percent but capped at $1,500, and in New Jersey it's 3.3125 percent, but in Florida it's 6 percent, and in Texas it's 6.25 percent.
Boat Sales Tax Calculator Calculate Sales Tax on a Boat by State. Estimated Boat Sales Tax . Boat Sales Price $
Another very good option to avoid initial sales tax is to identify an escape clause in your local tax jurisdiction. In Maryland, for example, one need not pay sales tax on a boat that files a certification stating that it is going to leave the state within 30 days of purchase. Similarly, in Florida, a non-resident need not pay tax if the boat ...
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.
If you are planning to keep your boat in Florida, for that kind of money, it simply doesn't make sense to register your boat offshore. In New York, you would pay taxes on the first $230,000 of the boat's purchase price. North Carolina's boat sales tax is 3% and capped at $1,500! In Maryland, the maximum out of pocket in sales tax is $15,000 ...
Nevertheless, there are circumstances in which legally avoiding sales and use taxes is a real possibility. Sales Tax Versus Use Tax for Boats. Sales and use taxes on vessels are imposed at the state and local levels. Sales tax is imposed at the time of purchase or transfer; use tax is imposed at the same rate as a state's sales tax, but it is ...
As the majority of the yachts we sell are built outside of the US an import duty of 1.5% of the yacht's value, based on the sales price, will be due when it reaches US waters. US waters include the territory of Puerto Rico, but not the USVI. A boat can be registered or US Coast Guard documented yet never have been to US waters.
The charity must be not-for-profit. The benefits are 1) not having to find a buyer and 2) transferring the boat fairly quickly with the charity processing the paperwork and providing an IRS Form 1098-C. If the charity sells the boat, you can only claim a tax deduction equal to the sales price, not your initial appraisal.
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.
A Maritime Lawyer breaks down a question about sales tax and buying a boat. This article originally appears in Sea Magazine, written by David Weil.. Question: I am in the market for a motor yacht in the 50-foot range and would like some information regarding the assessment of sales tax on my purchase.My broker suggested I should form an LLC to buy the boat, since a purchase by an LLC would be ...
There are certain rules to consider, however. Section 179 Rules. 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.
Currently, Florida has a sales and use tax for boats which is set at 6% of the purchase price. However, Florida caps the total tax amount due on a vessel at $18,000. This tax cap law went into effect July 1, 2010, and is still in effect today. If you're in the market for a boat valued at $300,000 or more, you can reap serious tax savings on ...
Connecticut sales tax is 2.99% on boats. New Jersey is 3.5% and capped it at $20,000. Alabama is 2% but has no cap. New York sales tax applies to only the first $230,000 of a boat's purchase price. Maryland caps tax at $15,000 on boats. Virginia the boat sales tax is 2% and capped at $2,000. 2.
The portion of the code allows homeowners to deduct interest on loans for their first and second homes. This deduction has a maximum of $750,000. Expenses. If you charter out your yacht for more than 50% of its usage (so that it qualifies as business-related), you are able to deduct 50% of the expenses associated with the vessel, including fuel ...
A few other popular boat-buying state's taxes are: California: Varies between 7% to 9% on purchase depending on homeport, plus personal property tax may also be due. Find your CA Rate by address or by location. Connecticut: 2.99% Delaware: 0% Florida: 6% state tax plus 0.5% to 2.5% surtax on the first $5,000. Find your FL surtax rate here. Illinois: 6.25% ...
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 ...
When you also consider what might be achieved from the tax standpoint, it makes for an ideal ownership profile. For more information on locating the perfect yacht for your business purposes, talk to an HMY Sales Professional today— 561-262-4132. HMY has 12 marina office locations from Charleston, SC to Ocean Reef, FL.
California sales and use tax in San Diego County, effective April 1, 2019, is 7.75%. On a $500,000 boat that equates to a significant tax of $38,750. Thus, buying the membership interest of an LLC with its sole asset of a $500,000 boat saves $38,750 in taxes. When the business entity is the owner of the boat there is no change in the title or ...
IRS estimated tax payment dates. The second quarter deadline to pay estimated taxes is Monday, followed by the third quarter payments due Sept. 16, 2024. The final estimated tax payment for tax year 2024 is due on Jan. 15, 2025.
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