Can You Write Off a Yacht on Your Taxes?

Owning a yacht often comes with significant expenses, prompting many to consider whether these costs can reduce their tax burden. The ability to deduct yacht-related expenses from your taxes is not straightforward, as it depends heavily on how the vessel is used and whether specific Internal Revenue Service (IRS) criteria are met. Tax laws are intricate, and what applies to one owner may not apply to another. For accurate guidance tailored to individual financial situations, consulting with a tax professional is always recommended.

Qualifying a Yacht for Deductions

The fundamental determinant for deducting yacht expenses lies in its primary use, distinguishing between personal and business purposes. Generally, expenses incurred for personal enjoyment are not deductible. Conversely, costs associated with a yacht genuinely used for business activities are typically eligible for deductions, provided they are ordinary and necessary for that business.

For a yacht to qualify as a business asset, it must demonstrate a clear profit motive. This means the activity involving the yacht, such as chartering, must be engaged in with the intent to earn a profit, rather than primarily for personal leisure. The IRS evaluates this intent by considering various factors, including whether the activity is conducted in a businesslike manner, the time and effort dedicated, and the taxpayer’s history of income or losses from similar ventures. An activity is generally presumed to be for profit if it generates a profit in at least three out of five consecutive tax years.

A yacht can also qualify for certain personal deductions if it meets the criteria for a “qualified residence.” To be considered a qualified residence (either a first or second home), the yacht must include sleeping, cooking, and toilet facilities. If these amenities are present, the vessel can qualify for specific tax benefits.

Deducting Business Yacht Expenses

When a yacht is legitimately operated as a business, such as a charter service, a range of associated expenses may become deductible. These include costs related to the vessel’s operation and maintenance, reflecting its role as an income-generating asset. Common deductible expenses can encompass depreciation, maintenance, repairs, fuel, insurance premiums, dockage fees, and salaries paid to crew members. Advertising costs incurred to promote the charter business are also typically deductible.

Depreciation is a substantial deduction for business-use yachts. Under the Modified Accelerated Cost Recovery System (MACRS), yachts used in a trade or business can be depreciated, often over a 10-year lifespan. For qualifying business assets, accelerated depreciation methods like Section 179 and bonus depreciation can provide significant upfront deductions. For 2024, qualifying buyers could claim up to 60% bonus depreciation, and Section 179 permits an immediate write-off of up to $1,220,000, although these benefits begin to phase out for total asset costs exceeding $3,050,000. To claim these accelerated deductions, the yacht must be used more than 50% for qualified business activities.

Regarding client entertainment, the Tax Cuts and Jobs Act of 2017 generally eliminated deductions for entertainment expenses, including those incurred at facilities like yachts. There are limited scenarios where direct business meetings on board might allow for deductions of specific expenses, but the entertainment value itself remains nondeductible.

In highly specific and scrutinized cases, a yacht might be considered a direct tool for a business, beyond traditional chartering. Examples include use in marine research, commercial fishing operations, or as a legitimate floating office. However, the IRS maintains strict scrutiny over these claims, requiring clear evidence that the yacht is primarily functioning as a business asset rather than for personal enjoyment.

Deducting Personal Yacht Expenses

While opportunities for personal yacht tax write-offs are more limited compared to business use, certain deductions can still apply if the vessel meets specific criteria. The most notable deduction for personal yacht owners relates to mortgage interest. If a yacht qualifies as a “qualified residence,” interest paid on a loan used to purchase it may be deductible.

This deduction is similar to that for a traditional home mortgage, allowing taxpayers to deduct interest on up to $750,000 of mortgage debt for a first and second home combined. For loans originated before December 16, 2017, a higher limit of $1 million may apply. This interest deduction is available only if the taxpayer itemizes deductions on their federal income tax return, rather than taking the standard deduction.

Property taxes paid on a yacht may also be deductible under the State and Local Tax (SALT) deduction. For tax years 2025 through 2029, the SALT deduction cap is set to increase to $40,000, up from the previous $10,000 limit, though phase-outs may apply for higher incomes.

Personal casualty losses, which could include damage to a yacht from events like storms, are generally not deductible unless the loss occurred in a federally declared disaster area. This rule is in effect through 2025. If a yacht is damaged in a presidentially declared disaster, specific relief provisions may allow for deductions, sometimes without needing to itemize, and with different reduction thresholds than typical casualty losses.

Essential Record-Keeping

Meticulous record-keeping is paramount for anyone seeking to claim tax deductions for yacht expenses. The IRS requires thorough documentation to substantiate all claimed deductions, ensuring they align with tax laws and regulations. Without proper records, even legitimate expenses may be disallowed during an audit.

Key records to maintain include detailed logs that clearly differentiate between business and personal use of the yacht. These logs should specify dates, duration, activities performed, and the specific business purpose for each trip.

Receipts for all expenses, such as maintenance, repairs, fuel, insurance, and dockage fees, are also necessary.

For yachts financed with a loan, retaining all loan documents is important to support interest deductions. If the yacht is depreciated, accurate depreciation schedules and purchase records are also needed. For chartered yachts, comprehensive income records detailing all revenue generated are equally important.