New tax deductions for sailors?
 

Hello,
This is my first posting, and I'm not too savvy, so please excuse
me if I ask a stupid question. One of the guys I dock near said he
read that there are some new laws this year that make it possible
for sailors to deduct a lot of equipment from their taxes. Is this
true? Where can I find out more about this? That would be great,
since I purchased my first boat this year. I'm getting all of my
paperwork together in preparation for filing on the first day
possible, which, according to the TaxBrain site, is Jan. 16, just a
week away.
Yours truly,
Jenny Mac

New tax deductions for sailors?
 

On Mon, 12 Jan 2004 18:16:00 GMT, Jenny MacLeod
wrote:



Hello,
This is my first posting, and I'm not too savvy, so please excuse
me if I ask a stupid question. One of the guys I dock near said he
read that there are some new laws this year that make it possible
for sailors to deduct a lot of equipment from their taxes. Is this
true? Where can I find out more about this? That would be great,
since I purchased my first boat this year. I'm getting all of my
paperwork together in preparation for filing on the first day
possible, which, according to the TaxBrain site, is Jan. 16, just a
week away.
Yours truly,
Jenny Mac

Are you referring to the mortgage interest deduction? It's not a new
law, but to a newbie it might be considered new. It may be that you
are a realtor selling only waterfront properties and use your sailboat
to take prospective customers to visit properties. I don't know if
this would work or not, but I always take the benefit of any
legitimate doubt. I figure you won't go to jail for legitimate doubt.

John H

On the 'Poco Loco' out of Deale, MD
on the beautiful Chesapeake Bay!

New tax deductions for sailors?
 

Hmmmm... well, it's possible to deduct the interest on the loan
of a boat if you claim it's a second home (or primary for that
matter). Then, you could upon the sale of the boat, deduct
the upgrades and improvements you made to it similar to
what you would do with a regular house.

You need to check with an accountant, as this is just a guess.

"Jenny MacLeod" wrote in message
.. .


Hello,
This is my first posting, and I'm not too savvy, so please excuse
me if I ask a stupid question. One of the guys I dock near said he
read that there are some new laws this year that make it possible
for sailors to deduct a lot of equipment from their taxes. Is this
true? Where can I find out more about this? That would be great,
since I purchased my first boat this year. I'm getting all of my
paperwork together in preparation for filing on the first day
possible, which, according to the TaxBrain site, is Jan. 16, just a
week away.
Yours truly,
Jenny Mac

New tax deductions for sailors?
 

Do you use the boat for business?

There are some new tax laws that permit
certain equipment acquisition costs to be written off as "expenses" rather than
depreciated over the life of the asset.

The "second home" deduction applies, whether you use the boat for business or
not.

New tax deductions for sailors?
 

On Mon, 12 Jan 2004 18:16:00 GMT, Jenny MacLeod
wrote:

This is my first posting, and I'm not too savvy, so please excuse
me if I ask a stupid question. One of the guys I dock near said he
read that there are some new laws this year that make it possible
for sailors to deduct a lot of equipment from their taxes. Is this
true? Where can I find out more about this? That would be great,
since I purchased my first boat this year. I'm getting all of my
paperwork together in preparation for filing on the first day
possible, which, according to the TaxBrain site, is Jan. 16, just a
week away.
Yours truly,
Jenny Mac

There are several ways to get tax deductions connected with boat ownership.
Some are better (safer) than others.

If you have a loan on the boat and it has a toilet and a stove, you may be able
to declare it a "second home" and deduct the interest on the loan along with any
property taxes paid.

If you have a business where you entertain clients (a real estate agent, as John
H suggests, below), you *may* be able to claim the boat as a business
expense--at least partially. This is risky, since it may have the appearance to
the IRS of a taxpayer's trying to evade taxes by calling a "hobby" a "business
expense." It's also risky because you may be more exposed to being audited--and
an audit may uncover other questionable aspects of your tax return(s).

Finally (and this is one of my personal favorites), you can use the boat as a
charter vessel. I've owned an Olson 25 sailboat for about ten years. It is
part of a charter business in the San Francisco Bay. The company (OCSC) handles
all the chartering of the boat along with all maintenance. We split the gross
charter revenue. In return, I am able to depreciate the boat (a non-cash
expenditure) and deduct all repairs and maintenance on the boat, along with
certain items I would buy anyway. The only real downside is that the boat gets
quite a lot of use, so systems do tend to wear out faster than if I were the
only person using the boat.

For my purposes, though, it's been a great setup.

[DISCLAIMER: I am not a CPA or tax lawyer. You should consult with a licensed
professional before making any decisions that may carry tax consequences]

HTH,
Joe Parsons

New tax deductions for sailors?
 

"Gould 0738" wrote in message
...
Do you use the boat for business?

There are some new tax laws that permit
certain equipment acquisition costs to be written off as "expenses" rather
than
depreciated over the life of the asset.

Not a new law per se, but a liberalization of section 179, which has been
around for quite some time. Section 179 allows you to accelerate the
depreciation of business assets into the acquisition year, rather than over
the life of the asset. The most obvious manifestation of the new higher
section 179 limits for tax year 2003 could be found in any new car/truck
dealership in the waning days of 2003. Businessmen were buying H2's,
Escalades, Navigators, etc. hand over fist on the advice of their
accountants. 100% of the purchase price of qualifying vehicles (min 6k GVW
as I recall) was deductible in the year of acquisition, up to $100k.
Unfortunately, I don't have any information handy that relates to the
qualification of marine hardware as it relates to section 179. But for
sure, the hardware must have a legitimate business use. There would be no
application of section 179 for a 100% pleasure vessel or any of its gear.
Maybe a sat phone to keep in touch with the office?

New tax deductions for sailors?
 

On Mon, 12 Jan 2004 19:41:36 GMT, Joe Parsons
wrote:

On Mon, 12 Jan 2004 18:16:00 GMT, Jenny MacLeod
wrote:

This is my first posting, and I'm not too savvy, so please excuse
me if I ask a stupid question. One of the guys I dock near said he
read that there are some new laws this year that make it possible
for sailors to deduct a lot of equipment from their taxes. Is this
true? Where can I find out more about this? That would be great,
since I purchased my first boat this year. I'm getting all of my
paperwork together in preparation for filing on the first day
possible, which, according to the TaxBrain site, is Jan. 16, just a
week away.
Yours truly,
Jenny Mac

There are several ways to get tax deductions connected with boat ownership.
Some are better (safer) than others.

If you have a loan on the boat and it has a toilet and a stove, you may be able
to declare it a "second home" and deduct the interest on the loan along with any
property taxes paid.

If you have a business where you entertain clients (a real estate agent, as John
H suggests, below), you *may* be able to claim the boat as a business
expense--at least partially. This is risky, since it may have the appearance to
the IRS of a taxpayer's trying to evade taxes by calling a "hobby" a "business
expense." It's also risky because you may be more exposed to being audited--and
an audit may uncover other questionable aspects of your tax return(s).

Finally (and this is one of my personal favorites), you can use the boat as a
charter vessel. I've owned an Olson 25 sailboat for about ten years. It is
part of a charter business in the San Francisco Bay. The company (OCSC) handles
all the chartering of the boat along with all maintenance. We split the gross
charter revenue. In return, I am able to depreciate the boat (a non-cash
expenditure) and deduct all repairs and maintenance on the boat, along with
certain items I would buy anyway. The only real downside is that the boat gets
quite a lot of use, so systems do tend to wear out faster than if I were the
only person using the boat.

For my purposes, though, it's been a great setup.

[DISCLAIMER: I am not a CPA or tax lawyer. You should consult with a licensed
professional before making any decisions that may carry tax consequences]

HTH,
Joe Parsons

Joe...as far as the charter expenses, I believe the law limits the
amount of the deductions you are allowed to the amount of income you
claim. The excess can be carried over to future years. If you are
depreciating your boat, you are likely faced with a taxable gain when
you sell it as your basis will be reduced by the amount of the
depreciation you have taken in prior years.

Having once had a boat that I allowed a charter operation to charter,
I was never so glad as the day I pulled my boat out of charter.
Hopefully the folks who charter your boat don't abuse your's the way
mine was abused. I don't believe I would ever buy a former charter
boat unless there was a heavy discount, based on my experience. In
any event, I hope things work out better for you.

New tax deductions for sailors?
 

On Mon, 12 Jan 2004 19:57:29 GMT, felton wrote:

On Mon, 12 Jan 2004 19:41:36 GMT, Joe Parsons
wrote:

On Mon, 12 Jan 2004 18:16:00 GMT, Jenny MacLeod
wrote:

This is my first posting, and I'm not too savvy, so please excuse
me if I ask a stupid question. One of the guys I dock near said he
read that there are some new laws this year that make it possible
for sailors to deduct a lot of equipment from their taxes. Is this
true? Where can I find out more about this? That would be great,
since I purchased my first boat this year. I'm getting all of my
paperwork together in preparation for filing on the first day
possible, which, according to the TaxBrain site, is Jan. 16, just a
week away.
Yours truly,
Jenny Mac

There are several ways to get tax deductions connected with boat ownership.
Some are better (safer) than others.

If you have a loan on the boat and it has a toilet and a stove, you may be able
to declare it a "second home" and deduct the interest on the loan along with any
property taxes paid.

If you have a business where you entertain clients (a real estate agent, as John
H suggests, below), you *may* be able to claim the boat as a business
expense--at least partially. This is risky, since it may have the appearance to
the IRS of a taxpayer's trying to evade taxes by calling a "hobby" a "business
expense." It's also risky because you may be more exposed to being audited--and
an audit may uncover other questionable aspects of your tax return(s).

Finally (and this is one of my personal favorites), you can use the boat as a
charter vessel. I've owned an Olson 25 sailboat for about ten years. It is
part of a charter business in the San Francisco Bay. The company (OCSC) handles
all the chartering of the boat along with all maintenance. We split the gross
charter revenue. In return, I am able to depreciate the boat (a non-cash
expenditure) and deduct all repairs and maintenance on the boat, along with
certain items I would buy anyway. The only real downside is that the boat gets
quite a lot of use, so systems do tend to wear out faster than if I were the
only person using the boat.

For my purposes, though, it's been a great setup.

[DISCLAIMER: I am not a CPA or tax lawyer. You should consult with a licensed
professional before making any decisions that may carry tax consequences]

HTH,
Joe Parsons

Joe...as far as the charter expenses, I believe the law limits the
amount of the deductions you are allowed to the amount of income you
claim. The excess can be carried over to future years. If you are
depreciating your boat, you are likely faced with a taxable gain when
you sell it as your basis will be reduced by the amount of the
depreciation you have taken in prior years.

There's a certain amount of gray area with respect to what you are able to
claim. If you are not at all involved in the operation of the boat ("passive
owner"), then there may be certain limitations on the amount of net taxable loss
that you are able to use to offset other, income. Obviously, if you claim to
have a charter business and yet show no income, only expenses, IRS eyebrows will
go up.

The income and expense for a charter vessel is reported on Schedule C (Profit or
Loss from Business). For a business owner who files a Schedule C already and
who has taxable income, the paper losses generated by a charter vessel can be
very attractive.

You are absolutely correct about depreciation's reducing the cost basis of the
boat and leading (possibly) to a recognized gain upon sale. (The cost basis is
the acquisition cost of the asset, plus certain capitalized costs, plus
capitalized improvements, less depreciation. I may have missed one or two
items, but this is the general idea) There are a couple of ways to view this:
first, by taking advantage of depreciation (a non-cash expense), you are able to
defer taxes on today's income to some time in the future. A dollar today is
more valuable than a dollar in the future. The other aspect to this is that,
just as with real property held for investment, it is possible to effect a
tax-deferrred exchange under §1031 of the Revenue Code.

In the simplest terms, you sell the old boat that you've been using as a charter
vessel and acquire another *bigger* boat, also for charter. That exchange will
not trigger a taxable event.

Hmm. Bigger boat. How cool is THAT!

I am *still* not a CPA or tax lawyer, so no one should rely on what I've said
here for making any decisions. Consult the guys with the appropriate licenses
for the information you act on.

Joe Parsons

(The preceding post is certified to be 100% free of political content)


Having once had a boat that I allowed a charter operation to charter,
I was never so glad as the day I pulled my boat out of charter.
Hopefully the folks who charter your boat don't abuse your's the way
mine was abused. I don't believe I would ever buy a former charter
boat unless there was a heavy discount, based on my experience. In
any event, I hope things work out better for you.

New tax deductions for sailors?
 

On Mon, 12 Jan 2004 19:57:29 GMT, felton wrote:

[snip]

Having once had a boat that I allowed a charter operation to charter,
I was never so glad as the day I pulled my boat out of charter.
Hopefully the folks who charter your boat don't abuse your's the way
mine was abused. I don't believe I would ever buy a former charter
boat unless there was a heavy discount, based on my experience. In
any event, I hope things work out better for you.

My experience with OCSC in the SF Bay Area has been consistently excellent.
These guys know how to run a charter fleet, they keep the boats well maintained
and make sure only qualified people are allowed to take the boats out.

It always comes down to the quality of the people running the operation; anyone
considering this kind of arrangement should be very sure they're comfortable
with the owners of the company.

For anyone who's interested in seeing what a first-class charter and sailing
school operation is like, pop over to www.ocscsailing.com. I've been dealing
with these guys for just about 10 years now, and it has been a pleasure.

Joe Parsons

New tax deductions for sailors?
 

Joe...

here is a link to what I believe to be a fairly accurate summary of
the current tax provisions relating to charter boats.

http://www.sailonline.com/html/Boat%...ssion_faq.html

Even assuming that you can justify "active participation", which takes
you to Schedule C, rather than the rental activity, it still seems to
me that there is not much liklihood of generating more deductions than
the amount of the income reported. You would then be faced with the
"hobby loss" provisions, which require you to show a profit or at
least the intent to make a profit. If you are using the boat more
than 14 days a year, you are required to allocate your expenses
between personal (nondeductible) and business. You can't deduct them
all if you are using the boat more than the allowed minimum.

I have no idea what your numbers look like, but I have always viewed
charter operations as a way to defray the costs of boat ownership, by
making a certain amount of income which, hopefully, covers most of the
costs of maintenance, etc. Generally, that income would be offset by
the amount of the expenses that can be claimed. If you are generating
net losses that you are using to offset other income, you are probably
at-risk in the case of an audit.

As an aside, how is the cost of your insurance? Liability insurance
on charter boats was out the roof when I had my old boat in a charter
program. I agree with you about the quality of charter operations,
though. I wasn't blessed with one that was looking after my
interests, but seemed more interested in making the charterers happy
by never charging them for things that they broke or came up missing.
I much prefer my simple life of sole ownership:)

New tax deductions for sailors?
 

I subscribe to 3 sailing publications, one general boating publication
("Soundings") and being a member of Boat/US also receive their publications
and don't recall reading of any changes in the tax laws regarding boat
ownership. There may be changes in the tax laws involved if you own a
charter boat and run it as a business, but I find it hard to believe that
I've read nothing about that in any of those publications. I would ask a tax
specialist.
John Cairns
"Jenny MacLeod" wrote in message
.. .


Hello,
This is my first posting, and I'm not too savvy, so please excuse
me if I ask a stupid question. One of the guys I dock near said he
read that there are some new laws this year that make it possible
for sailors to deduct a lot of equipment from their taxes. Is this
true? Where can I find out more about this? That would be great,
since I purchased my first boat this year. I'm getting all of my
paperwork together in preparation for filing on the first day
possible, which, according to the TaxBrain site, is Jan. 16, just a
week away.
Yours truly,
Jenny Mac

New tax deductions for sailors?
 

Treating your boat as a second home has been legit for a while. It has to
have a toilet and stove I believe.

Or maybe you are hearing about something for professional sailors aka
merchant marines?

"Jenny MacLeod" wrote in message
.. .


Hello,
This is my first posting, and I'm not too savvy, so please excuse
me if I ask a stupid question. One of the guys I dock near said he
read that there are some new laws this year that make it possible
for sailors to deduct a lot of equipment from their taxes. Is this
true? Where can I find out more about this? That would be great,
since I purchased my first boat this year. I'm getting all of my
paperwork together in preparation for filing on the first day
possible, which, according to the TaxBrain site, is Jan. 16, just a
week away.
Yours truly,
Jenny Mac

New tax deductions for sailors?
 

On Mon, 12 Jan 2004 21:43:30 GMT, felton wrote:

Joe...

here is a link to what I believe to be a fairly accurate summary of
the current tax provisions relating to charter boats.

http://www.sailonline.com/html/Boat%...ssion_faq.html

Even assuming that you can justify "active participation", which takes
you to Schedule C, rather than the rental activity, it still seems to
me that there is not much liklihood of generating more deductions than
the amount of the income reported.

I've been showing a net loss on my Schedule C for nine years now. I've never
been questioned--and I am in a category that is more at risk for audit than
many.

You would then be faced with the
"hobby loss" provisions, which require you to show a profit or at
least the intent to make a profit.

Yep! Interesting word, "intent." I think the key aspect to doing this
successfully is to generate income from the boat with some degree of regularity.
In my case, I show at least some revenue almost every month of the year.

If you are using the boat more
than 14 days a year, you are required to allocate your expenses
between personal (nondeductible) and business. You can't deduct them
all if you are using the boat more than the allowed minimum.

The dodge here is that, as the owner of a charter boat, there are certain times
that I have to sea test the boat, to be sure it is in good condition. I have
never been questioned about my personal use of the boat--and, so far as I am
aware, neither has anyone else at this particular charter operator.

I have no idea what your numbers look like, but I have always viewed
charter operations as a way to defray the costs of boat ownership, by
making a certain amount of income which, hopefully, covers most of the
costs of maintenance, etc. Generally, that income would be offset by
the amount of the expenses that can be claimed. If you are generating
net losses that you are using to offset other income, you are probably
at-risk in the case of an audit.

I have no loan on the boat. In a typical year it generates enough income to pay
maintenance and replacements. The pre-tax cash flow has been around a break
even for every year I've owned it. Since I run out of depreciation this year, I
will exchange into a larger boat--probably a Catalina 320. That transaction
will qualify as a tax deferred exchange under §1031.

As an aside, how is the cost of your insurance?

It's around $650 a year with $1 million liability and $500 deductible. If a
charter skipper has a claim, he (or she) agrees to pay the deductible. It's
only happened once in ten years.

Liability insurance
on charter boats was out the roof when I had my old boat in a charter
program. I agree with you about the quality of charter operations,
though. I wasn't blessed with one that was looking after my
interests, but seemed more interested in making the charterers happy
by never charging them for things that they broke or came up missing.
I much prefer my simple life of sole ownership:)

There are good and bad points for both.

Joe Parsons

New tax deductions for sailors?
 

Might note also that the tax refund on boaters gas in Washington State has
increased this year to $.28/gal.
Gordon

"Gould 0738" wrote in message
...
Do you use the boat for business?

There are some new tax laws that permit
certain equipment acquisition costs to be written off as "expenses" rather
than
depreciated over the life of the asset.

The "second home" deduction applies, whether you use the boat for business
or
not.