Placing Your New Yacht in Charter

Owning a new sailing or motor yacht is a great experience and the fun of owning it shouldn’t be diminished by the difficulty of paying for it. Many people have found that by placing their new yacht in charter they can enjoy the thrill of yacht ownership while using the charter income and tax benefits to significantly reduce the cost of ownership.

Ability to Own a Boat

At Cruising Yachts, we’ve been placing new yachts in charter for over 20 years through our affiliate, Club Nautique (www.clubnautique.net). We currently have over 50 privately-owned yachts in charter ranging in size from 26’ to 50’, making it the largest charter fleet in California. While some of our charter boat owners actually make a profit on their boats, the more typical experience is a reduction in the cost of ownership of about 50% through the combination of charter income and tax benefits.

As you read further, bear in mind that placing a boat in charter doesn’t stop you from using it. It’s available for you to use and will generate charter income when you’re not using it.

Tax and Cash Flow Advantages of Charter Ownership

Here is a summary of the tax and cash flow benefits available for new yachts placed in charter in 2009. The key here is that these tax benefits are available to businesses for the purchase of business assets and not to people who own a boat strictly for pleasure. By placing your new yacht in a charter management program with a charter company, such as Club Nautique, you are converting it from a personal asset to a business asset and, as such, qualifying for these tax benefits on your personal income tax return as the owner of a charter business.

Here is a summary of the tax and operating benefits available for new yachts placed in charter in 2008:

1. You are able to depreciate the cost of the boat over 10 years (using accelerated MACRS). This depreciation is available to you as a tax deduction.
2. Under Section 179 of the tax code, you can take a one-time tax deduction of the full cost of your yacht up to $250,000 and 50% of the cost over $250,000 up to a maximum deduction of $400,000 on your 2009 income tax return.  This expense deduction is part of the Economic Stimulus Act and expires at the end of 2009. (This presents an attractive tax planning opportunity if you are receiving a large bonus or other large payment of ordinary income from the conduct of a trade or business in 2009.)
3. You can deduct against charter income all ordinary and necessary charter related expenses including, for example, slip fees, insurance, repairs, loan interest, property tax, etc.
4. You will receive income from the charter of your yacht (60% to you and 40% to the charter company).
5. By placing a new boat in charter, YOU PAY NO SALES TAX on the purchase of the boat. As an alternative, sales tax can be paid on charter revenue as it is earned. That’s an immediate savings of 7.75% to 9.75% on the cost of the boat, depending on your tax district.

Professional Maintenance and Support

Placing your boat in charter with Club Nautique also is an excellent option for assuring that it will receive professional maintenance, service and care. All boats in the charter fleet are washed weekly and thoroughly cleaned inside and out after each charter. Routine maintenance is performed on a regularly scheduled basis and all damage promptly repaired.  For you, as the yacht owner, it means that you can spend your time sailing your boat and not doing cleaning, maintenance and repairs. We have some charter boats owners that keep their boats in Club Nautique strictly for the maintenance and service they receive, with little or no concern for how much the boat charters.

We require that every charter customer demonstrate that they are qualified to operate the boat being chartered and this help minimize damage to the boats. Any damage caused by a charter customer, up to the amount of the insurance deductible, is paid for by the damage deposit (cash or credit card) they make up front when chartering the boat.

In contrast to most charter companies that subcontract out their service work, Club Nautique maintains it’s own, highly experienced service crew that is backed up by the award winning service department at Cruising Yachts. Stop by Club Nautique in Alameda or Sausalito any day of the week and ask a staff member to show you the charter fleet. It will quickly dispel any concerns you may have about how your boat will be cared for.

Is Charter Ownership Right for Me

In deciding whether charter ownership is right for you, ask yourself three questions:

1. Am I paying income tax on taxable wages or salary from my work or business?
2. Do I have a limited amount of time to use my boat?
3. Am I willing to allow qualified people to charter my boat when I’m not using it?

If the answer to these questions is “yes” or “maybe”, then charter ownership is something you should consider. The reality is that most people use their boat once a month, on average, leaving the balance of the month available for charter. Besides, if the boat is paying for itself, it takes off the pressure some people feel to be constantly using it because of the cost. This actually lends to the enjoyment of the boat when they do use it.

The Next Step

This article may not have answered all of your questions and it may have raised a few new ones. We understand that charter ownership is right some people and not right for others, and we’re always glad to spend some time discussing it with you and answering your questions.  Please feel free to contact any member of our staff.

Caveats:

(a)  Our surveys show that over 90% of the owners that have placed their yachts in charter with Club Nautique feel it has achieved their expectations. However, we’re not tax advisors and are not able to give you tax advise. Everyone’s personal financial situation is different and you will need to evaluate the tax benefits of charter ownership for yourself and in consultation with your personal tax advisor.

(b)  Placing a yacht in charter won’t enable you to afford a boat that is well beyond what you might otherwise be able to afford. As a rule of thumb, if you have the income to afford a yacht at a certain price level, you’ll be in a position to take advantage of the tax benefits summarized above, thereby significantly reducing your cost of ownership.

Proudly Presenting