Sales taxes are levied in the U.S. by the individual states. Each state is somewhat different in their approach to this subject. Whether you owe this tax has to do with where the yacht is registered and where and how the yacht will be used. If you understand the system, you will know how to gain legal exemption.
*This information is general in nature and purchasers are encouraged to seek experienced legal counsel in yacht acquisition planning and implementation. Catamaran Guru is not a licensed Tax Attorney or CPA and is not qualified to give legal or tax advice but we can put you in touch with experts who are.
Write Off Ownership Expenses
If you live in the US or most European countries, you can reduce your taxable income by writing off certain yacht ownership expenses. The most common U.S. tax benefit is to treat your yacht as a second home, which is possible if you don’t already have a second home and your primary residence is valued at less than $1 million. This method will allow you to write off your interest expense on your loan. The other method is by actively managing your yacht in a charter business. This method enables you to write off your operating expenses as well as interest expense.
Section 179 Deduction Rules
Section 179 of the IRS tax code deals with depreciating business assets. It can be very tricky and you must follow the rules very carefully or the IRS will disallow your deductions and surprise you with a whopping tax bill. Even the tax experts get confused on this issue so be careful. But if you understand the rules you can take large initial depreciation deductions. The IRS allows this if you are ACTIVELY INVOLVED IN THE BUSINESS THAT THIS “EQUIPMENT” IS USED FOR (it could be a home office, charter yacht, become a sales associate with us and offer it for Sales Demonstrations). Go to our page on yacht as a business to find out more about how you can divert your taxes to pay for your yacht.
Contact an Expert
No matter how smart or experienced your personal accountant is, she or he probably has little experience in the caveats of tax laws for yacht ownership and charter operations. Taxes are a serious matter and you should get the best advice. We work with tax consultants who are experts in the field and can advise you and your accountant.
- California: For those of you attempting to avoid California use and sales tax, contact Aero & Marine Tax Consultants.
- Florida: If you will operate a day-charter business in Florida, you can now operate foreign-built “6 Pack” yachts in Florida with a “Jones Act Waiver”. This was passed by Congress and costs $500; Jones Act Waiver form. Read here about Florida Sales and Use Tax. Contact us for further details.
- Offshore Registration: This is another legal way to avoid paying sales/use taxes and U.S. Customs duties. However, you can expect to pay $2,000 to $5,000 to set up an offshore corporation. Many larger yachts prefer to register foreign flag for privacy and reduced liability reasons. Some U.S. lenders are comfortable with yachts registered in “Red Ensign” countries, i.e., former British colonies like the BVI, Cayman Islands, Bahamas, and Barbados. For details, contact us. Other lenders will insist upon U.S. documentation. Check with your lender early on. The drawback to offshore registration is that you will have to exit the U.S. once per year to renew a Cruising Permit in order to remain in U.S. waters. The other drawback is that the attorneys in these offshore jurisdictions charge $1,000-5,000/year to maintain the holding corporations. But you can usually achieve anonymity of ownership by using this strategy and the cruising permit is cheap. Contact us for more information.
- Concerning European VAT: You must follow certain rules, which include first leaving the EU for 6 months, but many cruisers can arrange this in order to save 13-20% VAT taxes. If you are a non-EU citizen going to Europe in a yacht then you can usually get a cruising permit and remain there tax-free for up to six months. Read more about effects of owning and operating in the EU:
- Buying a Yacht Outside the US: Tax and Legal Considerations
- FAQ’s about European VAT from the European Commission.
We specialize in the “Boat As A Business” program and how to offset the cost of ownership using charter management and tax incentives. We can help you determine the right program, the business structure for your operation, considerations such as taxation, exit strategy, and more. We also have many professionals from insurance brokers to lenders to tax specialists that reduce risks of running a yacht business and increase your overall confidence in and enjoyment of the business.
Our services are free to the yacht buyer if we help you purchase your boat.
Contact Us or Call Stephen: 1-804-815-5054
