The Yacht Law Podcast
The Yacht Law Podcast answers your legal questions about buying, selling, and owning superyachts; working aboard them; and more. Hosted by maritime attorney Michael Moore and yachting journalist Diane Byrne, each episode provides insight into how to better navigate the luxury yachting lifestyle. While we discuss common legal issues, the information shared is not intended as legal advice or as a substitute for the personalized advice of your own attorney. Consider The Yacht Law Podcast as a starting point to better educate yourself about the superyacht world.
The Yacht Law Podcast
100% Bonus Depreciation: The New Tax Advantage for Yacht Buyers
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A game-changing tax opportunity has emerged for yacht owners and prospective buyers with the recent passage of the One Big Beautiful Bill Act. The restoration of 100% bonus depreciation in 2025 offers an extraordinary financial advantage that could transform the economics of yacht ownership.
Michael Moore, a maritime attorney and co-host of The Yacht Law Podcast, breaks down this complex tax provision into practical, actionable insights. The concept is straightforward: rather than depreciating a yacht's value over its typical 10-year useful life, qualified owners can deduct the entire cost in a single tax year. For individuals with significant tax liabilities, this represents a substantial and immediate benefit.
Qualifying isn't complicated, but it does require attention to specific details. The yacht must be owned through a pass-through entity like an S-corporation, operated predominantly in US waters (including territories like Puerto Rico and the US Virgin Islands), and function as a legitimate charter business. While personal use should be avoided during the qualification year, professional yacht management companies can establish and operate compliant charter programs that satisfy IRS requirements.
The bareboat charter option provides a pathway to operate legally in domestic waters. Though this arrangement requires transferring operational control to the charterer, qualified captains approved by marine insurers can maintain professional standards while satisfying regulatory requirements.
With only the remainder of 2025 to capitalize on this opportunity, potential buyers might consider accelerating purchase decisions. As Moore notes, "You're getting such a gift here" – but it's essential to structure everything properly with qualified tax advisors who understand both maritime operations and tax regulations.
Whether you're considering your first yacht purchase or looking to upgrade an existing vessel, this podcast provides critical information that could save you millions in taxes while stimulating the broader maritime economy. Listen now to learn how to navigate the advantages.
Have a yacht law question? Email it to info@megayachtnews.com or michael@moore-and-co.com for your chance to have it answered on our podcast. All requests for confidentiality and/or anonymity are respected.
Hiring a lawyer is a big decision. Visit Moore & Company for the legal team's qualifications and experience. And, to learn the latest about superyacht launches, shipyards, designs, and destinations, visit Megayacht News.
Welcome everybody. Michael, welcome back to the United States.
Speaker 2:It's good to see you again. Thank you very much. Glad to be here.
Speaker 1:You know, when we recorded last, you were having an experience that I am highly jealous of. You were on a yacht in Japan having an amazing time. I'm sure that, as much as it is a good thing to be back in the office, part of you probably still wishes you were on the boat. Yeah.
Speaker 2:You experience. You know you work in yachting for as long as we have, and then you get a chance to not only just visit for two or three days but for 30 days in my case. It's quite a remarkable experience. I highly recommend it. But you know what? It is good to be back.
Speaker 1:Good, good. Well, I know the podcast that we recorded about cruising in Japan was of a lot of interest because we got some good feedback about that, so I think maybe you might have to go cruising with some more clients so we can get some more episodes.
Speaker 2:Yeah, I loved it. It was quite remarkable, yeah.
Speaker 1:Good, good Well. Being back in your office obviously does have its benefits, because the topic that we're going to be covering today I'm sure has been of a lot of interest to your clients, because it certainly is of interest to a number of yacht owners and members of the industry in general. This is the subject of bonus depreciation, the 100% bonus depreciation, to be specific. That has been in the news a lot because of the passage of the One Big Beautiful Bill Act earlier this summer. It has very strong advantages, not just for super yachts but for boats of all sizes, private planes, real estate it looks like there's a list of things that would benefit, so no wonder many people have been interested in it.
Speaker 2:Right True.
Speaker 1:Before we get into the nitty gritties of what qualifies for it, how yacht owners can take advantage of it, I do want to acknowledge that among our listeners we do have some people who aren't as well versed in legal matters, in financial matters. We've had some law students, for example, reach out and give feedback that they're learning a lot from this podcast. So for them and for other people, I think it's important to first note that before the One Big, beautiful Bill Act was signed into law, bonus depreciation actually did exist. It's just that it was scheduled to gradually reduce each year over the next couple of years. But even before we get into that, I think we should actually even just start with the basics. What specifically is bonus depreciation? What would you say? A good layman's definition is, you say, a?
Speaker 2:good layman's definition is Right. I think that first of all, if you to really remember it, depreciation is, as the first part of it's, kind of taken out of context, because what we're really talking about is a depreciation deduction. Depreciation is an idea that property normally depreciates over time, like a yacht, let's say, over 10 years. So it depreciates, it actually goes through its useful life 10%, let's say a year for 10 years. But the depreciation of deduction which the Internal Revenue Service allows for businesses to recover that cost over time, that's a deduction and it enables businesses to deduct a portion of the cost of the asset each year. This is normal, the normal way it works, reflecting things such as wear and tear, deterioration, obsolescence, and that deduction can be applied until the total cost of the asset is fully recovered. That's effectively the way it normally works.
Speaker 2:But it's an accounting thing. When you call it, you use that idea of deduction and depreciation as a deduction from your adjusted gross income. And then what makes this so interesting and wonderful is that because of the one big beautiful bill, you can depreciate. It's a legal fiction, but you can depreciate the value of the yacht in one year. You can claim a 100% deduction for depreciation in one year, it's 100% bonus depreciation in 2025. In our case, by reducing your adjusted gross income, you obviously pay a lot less taxes.
Speaker 1:Right, right, something that everybody would like to do.
Speaker 2:Nobody wants to pay more taxes than they have to right, that I can use in my business, depreciate in my business and take that excellent deduction off my taxes at the end of the tax year, and so that stimulates the economy. People go out and buy things and so if they're putting off the purchase of an asset, they move that purchase question forward and say I think I'll buy this year. We're on the yacht law podcast here, so obviously they would buy a yacht, do all the things required to qualify for bonus depreciation and take full advantage of it in the taxable year that the so-called qualified property is acquired the so-called qualified property is acquired.
Speaker 1:I want to get into some of those details on how a purchase would qualify in a second, but I want to get back to something else you said about buying a yacht this year. Does the purchase have to take place after a certain date or is it retroactive to an earlier date preceding the signing of the law?
Speaker 2:Yeah, I think they actually for some reason went retroactive with the big beautiful bill to the beginning, really the early parts of 2025. But basically, from that point forward in the year of passage you're talking about, the taxable year 2025 is what we're dealing with today. I mean, with laws, you always have to worry because they do change, but they don't change in a way that's called ex post facto. You can't change the rules after someone has relied on a new law. For example, the law we're dealing with now is the law that's enforced because of Trump. The big beautiful bill will have an effect on virtually any property acquired in 2025 or that will be acquired in 2025, as long as you meet the other requirements.
Speaker 1:As far as those requirements are concerned, why don't you walk us through what they are and what a yacht owner has to do?
Speaker 2:One of the things that you know when you read these laws, you always have to be very careful and fully appreciate that the laws are written by people and sometimes they can misstate things in terms of, in this particular case, what would be the qualifier for someone who would be using? It's kind of easily stated, but you need a US taxpayer. Obviously, this is all about tax law. I don't know that you necessarily have to be a US resident or a US citizen, but I think you without doubt have to be a US taxpayer. And this would be an appropriate time to say that we always work with the tax advisors of these in our case, yacht purchasers to make sure that our thinking is correct, because the truth is not everyone can use appreciation. You got to have the, you have to have the amount of income and to understand, you may already have the deductions, so your tax advisors do have to bless the transaction and say this taxpayer can use bonus depreciation in this case. So that would be the first thing. I think the first thing is the property. There should be no issue that the property the yacht is what is called a qualified property. The second thing is that if you're acquiring a yacht, you always want to make sure that the yacht is being acquired in what is called a pass-through entity, which simply means that whatever happens with the use of the yacht, whether losses or income, all those things are passed through to the taxpayer's personal income tax return. So you don't want to be acquiring it in an entity that's not a pass-through, which would be like an LTD or a typical corporation. Almost always it's going to be an S-corp. Then the other thing is I'll kind of take through these concepts and then we'll talk about specifics about each one.
Speaker 2:In this particular case, the vessel itself has to be used predominantly in the United States, which is broadly stated as a US possession would qualify, for example, us Virgin Islands. We can get into some weeds of what is meant by US possession. Some people are not aware that the United States has possessions, but we do in areas like Guam. But then the other big ticket is predominant use. Yachts are chartered. So obviously you can't just start chartering offshore. The yacht has to be used in the United States and you can use the bare boat option. I'll get to that in a minute.
Speaker 2:That's another point that I think. Not all yachts can be qualified for commercial use but you can't use the yacht personally in the year 2025, which makes it very attractive, for example, in the four months remaining in 2025, because you only have to defer use for four months. Personal use, that is, the crew needs to be employed by the same entity that owns the yacht or, if the yacht is foreign, registered registered, a so-called disregarded entity. It's pretty normal in the yacht world that this is the case and in many cases many authorities just take the position that the crew is kind of. Whatever your thoughts are in terms of trying to disassociate the crew from the yacht, you really can't Seaman or seaman. They serve on yachts. So I think, to make the drafters of the bill, you might make it clear that the crew all works for the pass-through entity. Not a difficult thing to do, probably normally, mostly done in 90% of the cases anyway, and to the extent it's not, I can tell you for sure. It has almost no effect on the fact that semen are semen, that you can't disassociate them from the guys they work for.
Speaker 2:The business plan option is easily achieved when you hire a yacht brokerage firm. Is easily achieved when you hire a yacht brokerage firm that has basically in the can business plans for chartering and promoting vessels, so that should not deter anyone. You just simply pick up the phone and call your local friendly yacht broker and in a house that actually manages yachts and charters yachts and voila, just add water, you have a chartering business which qualifies under the so-called IRS rules. Now, in this particular case, since it's going to be strictly construed, the owner would not really want to have personal use, but he should participate, as always, in who is chartering my yacht. Is this a good person? Is this a verifiable person? Did this person pass the know? Your client rules.
Speaker 2:You don't want to have someone on the OFAC list, for example, chartering the boat, but a lot of the yacht managers take care of that. But the owner should stay engaged because they want to show that the owner is fully participating in the business. Don't be fiddling with charters to yourself or to your family members. This would be one of those times where all the charters would be arm length parties, arms length charters at market rates. That's a summary. I think that kind of heads to 10 high points. I wouldn't go out and necessarily do any of this without consulting a tax lawyer or tax advisor, because obviously these are tax questions and the tax advisors have to pass on the structure and everything that goes with the bonus depreciation. I think they're all studying it now.
Speaker 2:It's just a tsunami of people trying to take advantage of bonus depreciation.
Speaker 1:Yeah, well, when it comes to tax law in general, it's never cut and dry. There's a lot of details that people need to pour through. I have friends and family who are in the accounting and finance world and the books that they get. They do courses every year to find out what the new tax laws are. They typically do these courses in December and the books, the binders, that they get, are so thick sometimes they get two and three of them and they change literally during the course. They get a whole stack of new paper because there's new information released. So a lot of details definitely to pour through. But I want to get back to something you said, because I'm really glad you brought it up the idea that an owner cannot charter the yacht to themselves. This is something that we've seen court cases around the world cover. Judges frown upon it, to say the least.
Speaker 1:And it's gotten some owners into trouble, so we definitely don't want people thinking that this is a legitimate way to take advantage of this new bonus depreciation law.
Speaker 2:Right.
Speaker 2:I think that's right. I find myself talking to the lawyers that I deal with about the sniff test, and a lot of times I find that very aggressive. Entrepreneurs, people that have an entrepreneurial attitude, do what I call you know they take things kind of face value, but it's things that don't pass the sniff test, which is there's something about that that doesn't smell right. And so when you get into personal use, which is very close to the chartering to yourself rules, there are times when you, the beneficial owner, can actually charter, as long as other things are done that make it real. For example, is he chartering at a market rate? If it's a very favorable way under market rate, it will be disallowed. I think when you're dealing with bonus depreciation, which is such an amazing opportunity, which is such an amazing opportunity, this is one of those times when you really don't want to get into all the little rules that govern personal use in a given period of time. I mean, I'm thinking right now that primarily and what happens when you have situations unfolding is IRS is making these administrative rulings and sometimes you have to always continue to check. There are, with respect to yachts, the so-called vacation home rules, and that's a very specific thing. It's a very specific deduction. It talks about yachts that have sleeping accommodations and cooking and bathrooms. Of course, almost all major yachts do. I do have one client. He's a very high profile celebrity and he has no accommodations on board because they don't want his, he doesn't want his friends staying over, so he doesn't have any extra bedrooms. But he's a little bit of an oddity. But I don't think that the hobby loss rules or the vacation home rules should be applied, certainly not for the remainder of 2025. You're getting such a gift here you would be, you know you don't want to get into. Well, is this yacht a residence? Has it been converted to a business? These are factual determinations. How much was the length of time? Did the owner otherwise permanently abandon his personal use of the property? That would qualify for the vacation home rules where you're trying to deduct for the vacation home. I just think you stay away from that. The so-called hobby loss rules are the same thing, kind of beyond the scope of this broadcast, but basically that's the rules that allow an owner to use his property for about 14 days during the tax year, and here again I I just think the better advice to a taxpayer is. You know, be very careful. Deal with your tax advisor if you feel like you just absolutely have to use the vote for, you know, 14 days or less. Maybe you're going to take it to st bart's at christmas, something like that but make sure you have an opinion in your file where the tax advisor has said you could do this and otherwise I would just say, you know, defer.
Speaker 2:But yeah, I mean there are a lot of tax rules and tax lawyers. They've always been viewed to great extent I think it's kind of a higher level of lawyer. They have the very tough curriculum in school and they're highly paid and you know they're. They're the bright ones who are kind of quiet and just all they do is work on the tax code all day long. So it's kind of a different world, but certainly a world that anybody trying to go for bonus depreciation should you know.
Speaker 2:We know the maritime aspects, we know how to do it maritime-wise. The tax lawyers a lot of times do not, but when we tell them how the yacht world works, they will then come in with okay, I've got it. These are things that are both worlds they're in the pure tax world and they're also in the yacht world. And, by the way, if you lose money in other words, your cost is so high you could argue that the net income is a loss, because it is a loss against the owner's passive income, but that doesn't matter. Losing is not the test, it's the fact that you have a real business in place. And again, hiring a yacht brokerage firm is a major step toward okay. These people run, they manage boats. They're actually called yacht managers the one that stands next to the yacht owner and they are professionals at what they do in terms of promoting these yachts for charter. So you have almost like an instant business if you enter into a management contract with a yacht brokerage firm.
Speaker 1:Now those same yacht managers would be familiar with the bare boat charter option you were talking about before. I know you wanted to go into a little bit more detail about that.
Speaker 2:Right, that's a sticking point for a lot of owners who are kind of in shock when you tell them what is a bare boat charter? Basically, what it means is that you're transferring all indicia of ownership to the charterer. Now, this would be important if you wanted a charter in the United States. So in other words, if you don't have an endorsed certificate, if you're not enrolled in an inspected vessel by the United States Coast Guard with a coast-wise endorsement, you can't trade coast coastwise, you can't start it with a true charter, for example.
Speaker 1:Fort Lauderdale you go to.
Speaker 2:Newport. That's coastwise. You can't go from Miami to Jacksonville that's coastwise. You can get around that legally if you enter into a true bare boat charter. Why You're not selling voyages, you're not selling time, you're selling charters.
Speaker 2:So the charter itself is paid for by the charterer, the bare boat charterer. And then you get into the part that sets the hair on fire of the owners, which is that you do have to convey the indicia of ownership to this chartering entity. Basically, it means that the charter has to be qualified, they have to have deep pockets, they have to be able to afford the charter kind of the things that most managers would try to qualify in the first place. A lot of them just do it on money. In other words, how much money do you place up front and then how much do you pay within 30 days of the charter? How much do you pay on the day of the charter? It pretty well paid up before you step on board the boat.
Speaker 2:But all those crew members the crew members themselves can be pretty much the people that were on the boat the week before, but the one person that draws scrutiny is the captain. In other words, did the owner give up control to the only person that really counts. The captain runs the boat. He is the owner's rep on board. He's the guy that hires the crew.
Speaker 2:We all hear his word is law, true, I mean, it's really effectively true. He has to be under most circumstances obeyed, without question. But if the captain is the same guy that was on board the boat last week, it kind of raises this question of well, did you really bare boat charter this boat? But you can do it, it's just that simple. There are qualified and certified captains in the industry that can step on board these large yachts and can operate them safely, approved by the underwriters. More and more these days we see the so-called named operator provision where the captain has to be approved and written into the policy. But under those circumstances, when the captain has to be approved and written into the policy, but under those circumstances when the boat has been bare boat charter, it can take a trip from say Fort Lauderdale to Newport.
Speaker 2:But again, you don't just jump all over the world. You don't go to Guam one day and American Samoa the next day and the North Mariana Islands the next day, which you might go to Puerto Rico, which is their territory, and Puerto Rico is a great cruising ground as a matter of fact, because people love it when they go down there to the United States. Virgin Islands you could go from Puerto Rico to Virgin Islands and all the time be qualifying for bonus depreciation and not jeopardizing it by too much non-domestic use Right right.
Speaker 1:Yeah, good point about Puerto Rico too. I've cruised down there and it is honest depreciation and not jeopardizing it by too much non-domestic use.
Speaker 2:Right, right. Yeah, good point about Puerto Rico too. I've cruised down there and it is stunning.
Speaker 1:Yeah, people love it. Some really great super yacht services, too, are starting to crop up more and more, so that's even better. Well, when I was looking up some information about this subject, I took a look at the brokerage listings just in general and some of the upcoming auctions, just to say, well, you know how would this benefit them, and there's some pretty high profile yachts out there and some really good yachts available for sale that could conceivably benefit from this.
Speaker 1:So I think if we could look into a crystal ball, I think we might actually see an uptick.
Speaker 2:we could look into a crystal ball, I think we might actually see an uptick. You know it's a lot to ask, to expect of a, you know, let's say, a person working in a brokerage house. To understand my sense is not to be unkind, but they are pretty much in the moment, there's an immediacy of the moment. People call and say I want to cruise in Bora Bora. And you know that's it. They're off to the races. Do I have a guy in the area of Bora Bora? Can I charter that? Does that yacht meet this client's requirements? I'm the yacht managers and the big houses have these sections that do more and more of the growing sections in terms of income production and revenue production. But I don't know. It's a little beyond the breach, I think, of most yacht managers to think in terms of bonus depreciation, to be honest about it. But they'd be smart to do it.
Speaker 2:Yeah, yeah smart to do it, yeah, yeah, I mean, if you think about a charterer might not want their client to buy a yacht because they're making their money chartering to the same guy. But just case in point, I think I think these these sessions that you and I have are always interesting, because I remember a certain yacht. The owner was getting a little frustrated. He wanted to sell this bad boy and it was about a half million dollars a week for chartering and the yacht broker suggested donating a week's charter to the Prince Albert's Gala for the oceans. That he does. I think he does it every year I'm not sure if it's if it's continuing, but it was going on that year.
Speaker 2:I remember, because it was a very, very unattractive man named Leonardo DiCaprio who was the master of ceremonies and he actually took half this guy. This guy really is just just incredibly good looking. Yeah, I mean whatever roles he's playing. I mean whatever roles he's playing. That's makeup and that's presentation, that's hair, all of that but in real life this sucker is just remarkably good looking. So that's my comment. Because I was invited to that particular event, I actually could one time I could actually see his photograph because I took a picture of him. But the point, though, is they donated the boat for the charity. The guy who charted the boat bought it, so that was the happy ending.
Speaker 1:Yeah, yeah, Michael, this has been super interesting for me and I'm sure we have helped educate a number of people as usual. We have helped educate a number of people as usual.
Speaker 2:It's rare, it feels like that we get to really dive into something that is kind of national news.
Speaker 1:It's usually something that's super, super niche in our universe.
Speaker 2:You know it's a timely thing, and boy it's just so sad when people miss these opportunities. You can achieve so many objectives just by simply moving up your acquisition date. That's what it comes down to. Move it forward and buy now, that's what Trump is immediately kind of guy. Oh, you know, we got to create business, we want to sell things, we want to buy things. And you know, by changing one aspect of this so-called big, beautiful bill which I don't know about you, but I've only read, I've Googled bonus depreciation. I'd heard that it was in there. Sure enough, it's in there, but the damn bill is 1,000 pages long or something. It's longer than Anna Karenina.
Speaker 2:I mean it's like, come on, but anyway, through AI you can now search it, read it it, study it and and advise your clients.
Speaker 1:this is an opportunity definitely well, everybody, as always. Thank you so much for listening today. If you have a yacht law question that you would like us to address on an upcoming episode, you can reach out to Michael or me. Our contact information is in the show notes for this episode. Until next time, I'm Diane Byrne.
Speaker 2:Michael as always, I will give you the last word. I'm sorry, I can't share this with all of you, oh my goodness, there's the photo. You know the show for the picture of Land Arlen that I took.
Speaker 1:Oh, he is ridiculously good looking. That's just not fair.
Speaker 2:Actors and bonus depreciation. Life is not fair.
Speaker 1:Anyway, it's been a pleasure, Diane.
Speaker 2:Thank you, have a good day.
Speaker 1:Thanks, thanks, everybody.
Speaker 2:Bye everyone.
