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Can I Claim Tax Deductions for a Yacht Purchase? by Lewis Kevelson, CPA

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Posted on February 13, 2025 by Lewis Kevelson

Buyers in the market for a yacht often hear from friends and anxious salespersons that they can claim federal income tax deductions when using a yacht for business purposes, such as entertaining clients or renting it out for private charters to generate income. This is often coupled with the promise of large depreciation write-offs against other taxable income. While this may be correct in certain circumstances, boat owners need to understand many of the nuances contained in the tax laws.

Tax Advantages of Using a Boat as a Business Asset

Bonus depreciation and Section 179 depreciation deductions both offer opportunities for accelerated tax savings on the purchase of a yacht used for business purposes, provided the buyer uses the vessel more than 50 percent for qualified business activities.

For 2024, qualifying buyers may claim a first-year bonus depreciation deduction of up to 60 percent of the yacht’s purchase price. In addition, Section 179 permits buyers to immediately write off up to $1,220,000 of the vessel’s value. However, the Section 179 deduction begins to phase out when the total cost of the yacht and the taxpayer’s other qualifying business assets placed in service during the year exceeds $3,050,000.  Additionally, Section 179 deductions are limited to the amount of taxable income generated by the business, and any unused deduction exceeding the business’s taxable income can be carried forward to future tax years.

If a yacht is used predominantly outside the United States, neither bonus depreciation nor the Section 179 deduction is available. Instead, the yacht must be depreciated using the straight-line method. The IRS defines property as being used predominantly outside the U.S. if more than 50 percent of its business use occurs outside the 50 states, the District of Columbia, and U.S. territories.

Proving Active Participation

It is common for yacht owners to hold title to their vessels through a business entity, such as a corporation or limited liability company (LLC), which can provide personal liability protection from the legal and financial risks of yacht ownership. For example, in the event of a boating accident, an injured party cannot pursue economic damages from the yacht owner’s personal assets. The structure you select can also come with some unique tax advantages, such as the ability to claim deductions for business expenses, such as fuel, dockage/storage, maintenance, insurance and costs for a captain and crew, as well as depreciation.

To claim tax deductions for maintaining and operating a yacht as a legitimate business asset, the owners of a pass-through entity, including an LLC or S Corp, must demonstrate that they actively and materially participated in those trade or business activities regularly, consistently and substantially with the intent and ability to make a profit. In doing so, you may use losses generated from those income-producing activities to offset other earned or ordinary income, thereby reducing your overall income tax liabilities.

To prove material participation in a trade or business activity and maximize your deduction, you must meet one of seven tests that include the following:

Another hurdle taxpayers may face is the excess business loss rule, which may limit the allowable loss from a yacht-related business if the total business deductions exceed the sum of business income and the annual threshold amount of $305,000 for single filers or $610,000 for married filing jointly in 2024. Any loss exceeding this limit cannot be deducted in the current year. Instead, it must be carried forward as a net operating loss (NOL) to offset future taxable income. This rule is particularly relevant for yacht chartering businesses with high operating costs and substantial depreciation expenses, as it restricts the immediate offset of losses against other sources of income.

Additional restrictions for deductions apply based on your use of a yacht for business purposes versus your personal enjoyment. Generally, if you use the yacht for personal use for more than 14 days of the tax year or more than 10 percent of the total days you charter it out to others at a fair rental price, the IRS will consider the vessel a second home, and you will need to divide your total expenses between the rental use and the personal use based on the number of days used for each purpose. Your deduction for rental expenses will also be limited to no more than the income your yachting business generates in a particular tax year.

Developing a comprehensive for-profit business plan is essential to demonstrate that a yacht-centered business operates with the intent to generate income and not for personal enjoyment. The plan should outline revenue strategies, target markets, operating costs and anticipated profitability to substantiate the business purpose. This requires keeping detailed logs of the yacht’s use, including dates, activities, participants and the specific business purpose of each trip, to support deductions and ensure compliance with IRS rules. Thorough documentation strengthens the taxpayer’s position during an audit and provides clear evidence of the yacht’s legitimate business use.

Maximizing deductions requires strategic planning and careful documentation when placing a yacht in service for business use. To qualify for tax benefits, including bonus depreciation and Section 179 deductions, more than 50 percent of the yacht’s use must be for business-related purposes. This may include charters, client meetings or promotional events supported by detailed logs and a clear for-profit business plan. Operating costs like fuel, insurance, and maintenance may also be deductible based on the business-use percentage. Proper planning with tax professionals can help ensure compliance and optimize savings.

About the Author: Lewis Kevelson, CPA, is a director with Berkowitz Pollack Brant’s International Tax practice, where he helps high-net-worth families, entrepreneurs and business owners structure transactions to comply with domestic and international tax matters while building and preserving wealth. He can be reached at the firm’s West Palm Beach, Fla., office at (561) 361-2050 or info@bpbcpa.com.