Imagine claiming the full value of, say, a $10 million yacht against tax in a single year. That’s a large and immediate tax benefit made possible with 100% bonus depreciation under last year’s OBBBA, and it applies to any yacht acquired and “placed in service” after January 19, 2025.
“Placed in service” means the vessel must used for commercial (i.e. charter) purposes more than 50% of the time. There are conditions, of course, and, with a high-value asset that has such an obvious potential for personal use, the IRS will maintain a high level of scrutiny.
The potential tax advantage is huge, but compliance will be essential.
Maintaining and evidencing compliance
The core requirements to be eligible for 100% bonus depreciation are fairly clear. The vessel must be used for legitimate charter (or other business) purposes more than 50% of the year. It must operate in US territorial waters (including US territories like Puerto Rico and the US Virgin Islands) for more than 50% of the time. And the vessel must be new to the taxpayer’s business use, i.e. placed in service after January 19, 2025.
The business use and operating geography are not one-off requirements. The vessel must be able to evidence its continuing compliance.
For charter use, that probably means having a contract with a professional charter agency that includes active marketing and charters sold at market rates to genuine, independent clients. Being able to segregate business and any personal-use costs, demonstrate a business-like approach and a clear profit motive become critical.
Having separate accounts for charter business, general yacht operating costs and for personal costs will help. Giving captains and crew separate, dedicated payment cards for charter costs and operational costs will maintain the separation and create an audit trail that demonstrates the purpose and place of each expense.
With 13 years supporting charter, private and dual-use yachts, here’s how Centtrip’s financial infrastructure can support your vessel’s commercial operations.
Separate accounts for every use-case
Our clients typically operate several, separate accounts on the Centtrip platform; one for the yacht’s general operating costs, one for charter business costs, one (or several) for charter guests’ APAs. They can also have separate accounts for other family office costs, real estate, or private jets.
You can transfer funds fee-free and instantly between accounts on the Centtrip platform and all accounts can be managed from a secure, single login, any-device app.
As many high-limit cards as you need
When you’re trying to maintain and demonstrate clear segregation, cash can be a nightmare. An envelope of random, tattered Amex receipts is only a little better.
The answer is to use separate, dedicated cards for each operational aspect. Captain and crew can have different cards for yacht operations and guests’ charter APA expenses. With expense management and receipt capture, every transaction can be fully recorded contemporaneously – just snap an image of the receipt and add any relevant notes.
Transactions, receipt images, and notes are all instantly shared to your accounting systems using Centtrip’s secure, open-API technology to give you real-time expense tracking.
We also provide direct integration with leading accounting and yacht management systems.
Card limits and functionality can be set by the client at a granular, per-card/per-user level.
Tailored, real-time reporting and audit trail
As well as our open API, we provide tailored reporting to meet your operational and accounting requirements. You can also export transactions to a spreadsheet if that’s what you need. Either way, rich transactional data – from cards and account-to account wire transfers – provide a clear audit trail that can help evidence genuine, commercial charter use for your yacht.
Using real-time data can also help flag any imminent breach of compliance through a shortfall in either charter use or presence in US waters.
Expertise in complex organizational and asset structures
It’s easily overlooked, but managing financial operations for large yachts can quickly get complicated. Supporting some of the world’s largest superyachts, Centtrip is an expert in managing large, cross-jurisdictional transactions for complex organizational and asset structures.
The full lifecycle opportunity
The OBBBA’s bonus depreciation rules don’t apply solely to distinct assets. Qualifying capital expenditure is also eligible for 100% expensing. That means that a major refit that adds qualifying equipment or machinery, placed in service within the OBBBA window, could also present a tax-saving opportunity.
Major refits can be complex projects in themselves with milestone payments spanning many months, even years. The projects are often multi-party and multi-currency when European shipyards are involved.
If the opportunity for bonus depreciation makes a refit more compelling, or even if it’s just due as part of the yacht’s lifecycle, Centtrip can help. We provide escrow accounts that provide the transparency and security that all parties require for milestone/stage payments. We also provide exchange-rate hedging to protect owners from the unexpected impact of currency fluctuations.
And, if the OBBBA has changed your calculus on yacht acquisition (or disposal), Centtrip’s escrow services and FX hedging can help there, too.
Managing the recapture risk
As we noted above, the commercial use and operational requirements are not one-offs. They are ongoing commitments.
The IRS is likely to keep a watchful eye on yachts claiming 100% first-year depreciation. If business use falls below 50%, if the yacht fails to operate within US waters for the majority of time, or if other requirements are missed in any subsequent year, the IRS will recapture the excess depreciation – that is, the difference between what was claimed through bonus depreciation and what could have been claimed under standard depreciation rules. That could run to millions of dollars.
Establishing a claim for 100% bonus depreciation is only the starting point. Owners, their representatives, and service providers must establish and maintain a clear audit trail of commercial operations to defend against the recapture risk. Centtrip can help.
If you’d like to discuss how Centtrip can provide the financial infrastructure layer that supports clear separation of commercial and personal use – or any other aspect of financial yacht management – please contact us.
Will you be at the Palm Beach International Boat Show? We’ll be there, so why not reach out and we can connect in person.
Note: The OBBBA provisions are complex and their application will vary depending on individual circumstances, ownership structure, and state of residence. This article is for general information only. Owners should seek advice from a qualified US tax adviser with experience in maritime tax before taking any action.
Want to know more?
For more information on how Centtrip can support your yacht operations, please get in touch today.