How Tax Reform Affects Yacht Businesses in 2018
There are some nuggets for yacht buyers and charter yacht businesses in the recent Tax Cuts and Jobs Act of 2017 signed by President Trump on December 22, 2017.
Highlights of changes that affect yacht owners are as follow:
- No new luxury tax on boat sales was added to the approved tax bill.
- The second-home interest deduction for boats, when used as a secondary residence, was largely kept intact. While boat mortgage interest is still be eligible for deducting on your tax return, the reformed tax rules lower the cap from mortgages of $1 million to mortgages of $750,000.
- Until this tax reform act, pass-through businesses were taxed up to 39.6 percent. Effective 2018, pass-throughs will be taxed up to 37 percent with a 20-percent deduction of qualified business income. 95% of American businesses are pass-throughs so this is good for charter yacht business owners as well as yacht buyers who will have more disposable income to go toward their sailing dreams.
- Current Section 179 allows Immediate expensing of some capital investments like yachts used in a charter business. With tax reform, the Section 179 limitation is increased to $1,000,000 for tax years after 2017, with phase-out beginning at $2,500,000 of qualifying assets placed in service for for five years.
- Doubling of the estate tax exemption from $5.6 million to $11.2 million may help some yacht buyers.
A few of the providions help to keep yacht purchase prices low:
- Lower corporate taxation rates promote lower prices from boat manufacturers. The tax reform lowers the corporate tax rate from 35 percent to a flat 21 percent and repeals the corporate Alternative Minimum Tax.As well, the aforementioned pass-through rate reductions will help many boat manufacturers keep costs low.
- In the new tax regulations, research and experimental expenditures for activities conducted inside the United States must be capitalized and amortized over a five-year period. The allowance for R&D expenses in boat manufacturer deductions is good for the yachting industry as a whole, but especially for boat buyers.
As the tax reform impacts and opportunities for yacht buyers and charter yacht businesses come to light, we will be keeping you up-to-date. Read more about 2017 tax change impacts to the boating industry and how National Marine Manufacturers’ Association (NMMA) supports legislation that favors the yacht industry.
Learn More About Business Yacht Ownership
General Yacht Related Tax Issues: Section 179, California Sales & Use Tax, Florida Tax Rules & European VAT Rules
