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Place Your New Yacht In Charter and Let It Pay For Itself

Wouldn't it be ideal if you could own a yacht and reduce your income tax liability by doing so? For years savvy yacht owners have been doing just that...placing their new yacht in a charter program and taking advantage of tax write-offs including depreciating of the purchase price and deduction of expenses like slip fees, insurance, maintenance, property taxes and more. The combination of tax savings and charter income reduces the cost of buying and owning a yacht for many yacht owners by 50% or more.

Before you assume that placing a yacht in charter isn't something for you, take a moment to consider our unique charter management program, California Sailing Charters®, designed specifically with the yacht owner in mind.

With our innovative program you can purchase the yacht you want, equip it as you want and place it in charter in your own slip in San Diego, Newport Beach, Long Beach, Marina del Rey or the San Francisco Bay. In our program you gain the tax and income benefits of charter placement while having your yacht close to home and available for your use whenever you want to use it.

Your Yacht As A Business

Before getting into the details of our program, let's review the tax benefits of placing a yacht in charter. The key to understanding why yachts placed in charter can generate significant tax benefits is that these tax benefits are available to businesses for the purchase of new equipment. By placing your new yacht in a charter management program, you are converting it from a personal asset to a business asset (i.e. business equipment) and, as such, qualifying for these tax benefits on your personal income tax return as the owner of a charter business. These “business” tax deductions are not available to people who own a yacht strictly for pleasure.

Here is a summary of the tax and operating benefits available to the owners of new yachts placed in charter in 2012:

• Internal Revenue Code Section 179- allows you a one-time expense deduction of the full cost of your yacht up to a maximum deduction of $139,000. This benefit is limited to yachts priced up to $560,000.

• Bonus Depreciation Under Section 179 - allows you to write-off 50% of the purchase price of your yacht in the year of acquisition after accounting for the Section 179 deduction.

• Depreciation - you can depreciate the balance of the purchase price (the remaining cost after deducting the Section 179 expense deduction and the first year bonus depreciation) over 10 years using straight-line or accelerated depreciation.

• Alternative Minimum Tax - both the Section 179 expense deduction and 50% bonus depreciation are EXEMPT from the AMT.

This substantial expense deduction and AMT exemption are an attractive tax planning opportunity for a highly compensated individual or someone receiving a large bonus or other large payment of ordinary income from the conduct of a profession, trade or business. Here's an example of how the Section 179 deduction works:

Purchase Price Section 179 Deduction (Maximum) 50% Bonus Depreciation Deduction Total First Year Deduction

$400,000 $139,000 $130,500 $269,500

After taking the full first year deduction of $269,500, the balance of the purchase price of $130,500 can be depreciated over 10 years. If you cannot use the maximum first year deduction under Section 179, you can deduct the amount you need and depreciate the balance.

In addition to tax deductibility of the purchase price, here are some other significant benefits of placing your new yacht in charter:

• Deduction of Operating Expenses - as a business asset, you can deduct all of the expenses of owning and maintaining your yacht including interest on your loan, slips fees, insurance and maintenance against your charter income and any excess against other income from the active conduct of your business, trade or profession.

• No Sales Tax Paid on Purchase - many owners of yachts in charter elect to pay the sales tax on charter income as it is earned and not on the price of the yacht at the time of purchase. This is an immediate saving of approximately 8% at the time of purchase. Certain rules apply to making this election that must be followed.

• Charter Income - you will receive income from the charter of your yacht, the amount of which varies depending on the size and location of your yacht.

Will this Program Withstand Audit by the IRS?

Thousands of yacht owners have been placing their yachts in charter and taking advantage of these tax benefits for years. Cruising Yachts has assisted many of these yacht owners with charter ownership and we have answers to all of your questions. While we are not qualified to answer tax or legal questions relating to your specific tax situation, we conduct seminars on this topic at major boat shows and will work directly with your CPA or tax advisor to qualify your yacht to be eligible for this program. We also can refer you to a qualified tax professional for assistance.

Over the years that we have been placing yachts in charter, we are not aware of any effort by the IRS to target the owners of charter yachts for audit. In the few cases we know of in which charter yacht owners have been audited, those that have followed the guidelines for the legal deductibility of their yacht purchase and operating expenses have been successful in defending these deductions.

Our Unique Program - California Sailing Charters®

The distinction between our program and other charter programs is that our program has been specifically designed with the yacht owner in mind. California Sailing Charters is a management company, not a typical charter company program. This distinction for you, as a yacht owner, could not be more important.

In the typical charter company program little consideration is given to the yacht owner's interests:

• You must keep your boat at their dock;

• You must equip the boat to their requirements;

• Your use of your boat is limited and discouraged on weekends and holidays, the peak charter days for charter companies;

• They offer "bareboat" charters in which your boat is chartered to anyone with minimal sailing experience;

• They charge you for maintenance and repairs but make money by doing as little as possible;

• At the end of your yacht's charter life, typically 5 years, the excessive wear and tear means that you won't want the boat and its poor condition almost assures you of losing money on resale.

In contrast, our management program has been specifically designed to provide you with the tax and income benefits of charter ownership without the drawbacks of the typical charter company program. With our program:

• You keep the boat in your slip, even if your slip is directly behind your home;

• You equip the boat the way you want it equipped;

• You use your boat whenever you want to use it including weekends and holidays;

• Your boat only goes out with one of our carefully selected, highly experienced, Coast Guard licensed captains at the helm;

• Your boat charters less often but at a higher rate;

• Wear and tear is considerably minimized because the boat charters less often and only with a qualified skipper at the helm.

• There is no limit on how long you can leave your boat in our program and resale value isn't affected because wear and tear is minimized.

• We work with you on an exit strategy, whether that's rolling your yacht over into a new yacht or selling it, to minimize any tax consequences and maximize the resale value.

The Next Step

As one of North America's largest yacht dealers, our services go well beyond just selling you a boat. We offer guidance on the best options for financing, insurance, taxation and management programs all the way through to the ultimate sale of your yacht. Our goal is to make yacht ownership easy, enjoyable and affordable for you.

If you have an interest in learning more about placing a new yacht in charter, send us an email at info@cruisingyachts.net with your complete name, address and phone number. We understand that charter ownership is right for some people and not right for others. We’re always glad to spend some time discussing it with you and answering your questions. If you decide to go ahead, we’ll assist you through the entire process. You’ll find that buying a yacht and placing it in charter is an easy and enjoyable experience.

One final caveat. Placing a yacht in charter will not 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 will be in a position to take advantage of the tax benefits summarized above, thereby significantly reducing your cost of ownership.