Tax knowledge is required to get a tax deduction on a yacht or another luxury boat. If you use your yacht for more than 50% of business travel your potential tax deductions could include fuel, insurance, repairs dock fees, etc. which are limited by tax rules on luxury water transportation.
Tax laws are harsh when using the yacht as an entertainment facility, so using the yacht as business entertainment is strongly discouraged because business entertainment is no longer deductible under the Tax Cuts and Jobs Act.
If you use your yacht for more than 50% business travel you can avoid the entertainment facility rule and the listed property penalty. The entertainment facility rule was enacted in 1978 and denies any deduction “with respect to” a facility “used in connections with” any activity generally considered to constitute entertainment, amusement, or recreation. Tax law classifies yachts and other pleasure boats as “listed property”. Listed property can be any asset that is eligible to record depreciation in accordance with IRS rules. If you use your yacht more than 50% for business travel you can qualify for accelerated depreciation, bonus depreciation and avoid depreciation recapture in later years.
An example of using a yacht as business travel: A general insurance agent in Florida takes his 25 agents to three business meetings, one in Bermuda and two in St. Thomas. On this trip the general agent uses the yacht for business transportation – not for business entertainment.
In addition to qualifying your yacht for a deduction, tax law has 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. This luxury water limit can change monthly so check the guidelines for the current luxury water limit.
- Make sure the yacht is used more than 50% for transportation and not for business entertainment.
- Since the Tax Cuts and Jobs Act eliminated the deduction for business entertainment, there is no advantage to use the yacht for this purpose. If the IRS finds that the yacht was used as an entertainment facility the entire deduction could be lost.
- If the yacht qualifies as a mode of business transportation, determine how the luxury water travel rules will limit the deduction.