Owning a Yacht as a Business
The Moorings Advantage Program is designed for active participation by the Owner to run their yacht as a business.
Running the yacht as a business can provide the Owner of the yacht some significant tax benefits. The program is structured like a business, with a revenue stream based on the actual charter income generated by the Yacht and actual expenses in order to properly run this charter business.
The Advantage Program starts with a comprehensive business plan. This includes establishing the Yacht in an LLC and from the day the Yacht enters service, the Owner needs to monitor the activity, track and document all income and expenses, communicate with the Moorings and periodically visit the Yacht and the base. Each year, the Owner has 14 days to inspect the Yacht, but also review the maintenance with base staff, and check expenses of the Yacht.
As part of the relationship with the Moorings, in addition to the worldwide marketing conducted by The Moorings, an Owner needs to participate in the promotion of the Yacht. For example, by generating content for the Moorings Yacht Ownership blog to help promote charter demand and maximize revenue. Partnering with the Moorings, the Owner may refer charters and earn commissions as well as referral fees for introducing new owners to the Moorings.
As an active Owner, it is important to stay abreast of the charter industry by way of attending yachting exhibitions and allowing The Moorings to keep you informed of new innovations and developments that may impact your business.
By making certain you perform the aforementioned, and meticulously document all the time spent to include a minimum of 100 hours per year, you should qualify under standard IRS rules for active participation into your Yacht business.
These tax benefits include potential losses from operations (charter revenues less operating expenses, less depreciation and interest payments on the loan). Other tax benefits are the deduction of personal expenses for inspection trips, boat show participation and any other expenses incurred while running the Yacht as a business. Under IRS “Safe Harbor Rules”, these would be considered legitimate tax deductions.
While it is important for the Owner to make, and to show, every effort for the Yacht Charter business to reach profitability, it is "intent" that is crucial. The important point on which to focus is that you are actively involved to this end and the cumulative time you are involved in your Yacht business must exceed any one other person that is involved in booking or maintaining your yacht.
It should be pointed out that although as an Active Owner you do have the right to use the Yacht, any excessive use will impact the income potential. Owner's personal use not exceeding 10% of the total time that the Yacht is chartered annually is generally acceptable under IRS guidelines. it is also worth considering renting your own Yacht. This would give you additional time to enjoy the Yacht while having the revenue flow through your business.
For additional important considerations, check out my video:
This type of program can be complex and the risk of a tax audit is possible. But I suggest a structure that takes a normal, annual straight line depreciation over the length of the program as opposed to a first year FULL DEPRECIATION. This minimizes scrutiny and keeps the focus on the well-documented activity you perform; making certain you're conforming to the accepted 100 hour safe harbor rule.
To discuss additional information concerning these important tax benefits please contact me. I have owned and enjoyed multiple Yachts with The Moorings over the years, in both the Guaranteed Income program as well as in The Moorings’ Advantage Program. There is no cost or fee for our conversation and I can promise it will be helpful and informative. We even offer substantial discounts should you need accounting or tax preparation services in the future.
USCG Captain Patrick J. Wehrly
Enrolled Agent admitted to Practice
3325 Spring Cypress Rd, # 100
Spring, TX 77388