Have you ever thought about buying a boat for getting out on the river, lake, or stream as a getaway from the stress of business? Or maybe you are thinking of buying an airplane and renting it out through a general aviation facility. And, hey, perhaps we can use the boat or airplane for business purposes and write it off.
Before you buy that airplane or boat, think carefully about how you want to use it for business purposes. If you're going to use the boat or airplane for entertaining customers, vendors, or business associates, you need to know about whether expenses associated with it are deductible. The same tax regulations apply to motor homes, and other similar vehicles and facilities.
Entertainment Expenses No Longer Deductible
The 2017 Tax Cuts and Jobs Act tax made all entertainment costs non-deductible for businesses. This includes entertainment facilities – any property you own or rent for entertainment purposes. Entertainment facilities include hunting lodges, vacation homes, swimming pools, tennis courts – and yachts and airplanes. This exclusion means you can't deduct expenses for depreciation and operating expenses for these facilities.
You may be able to deduct business meal expenses at 50% as part of an entertainment event or at an entertainment facility if you can separate out the cost of the meal. An example might be catered food that you serve to customers on your boat.
Meal expenses are deductible at 50%, and the are only deductible if they are ordinary and necessary business expenses, and the meal costs can't be lavish or extravagant.
Boats and Airplanes as Businesses
If the boat or airplane is used as a business (for hire, for example), you can get some tax benefits from this business.
Depreciation: You can depreciate the boat or airplane as a business asset if it qualifies as a business asset (see below).
Expenses: You can deduct expenses for operating the boat or airplane for business purposes. Gasoline, maintenance, mooring fees, insurance, and repairs can be included in the deductible expenses.
You must be able to provide documentation about the use of the boat for business purposes. The documents must (1) be created at the time of the event, and (2) include specifics: When was it used? Who was it used for (include names and titles)? What was the specific business purpose?
Boats and Airplanes as Listed Property
The IRS has designated a particular category of business assets called listed property, which includes computers, autos, boats, airplanes, and other assets that can have both business and personal uses.
To deduct any costs associated with listed property, you must use it more than 50% of the time for business. For example, if you use your boat or airplane for charter business purposes, and you also take it out for personal reasons, you must document what percentage of the time you use it for business.
Personal use becomes income: Once you have established the boat or airplane as a business asset by showing that it's being used more than 50% of the time for business, any personal use becomes a benefit to you personally, and you must pay taxes on this personal use.
Depreciation of listed property: The IRS has some specific requirements for depreciating listed property. You must use the MACRS system and the straight-line method, and there are other requirements.
Boat or Airplane – Business vs. Hobby
If you buy a boat or airplane for business use, you must be able to show that you are running a legitimate business, and are not just taking out fishing or flight charters as a hobby. To avoid IRS scrutiny under "hobby loss" rules, you must keep good business records, show that you intend to make a profit, and make a profit. If the IRS determines that your use of the boat or airplane is a hobby, you can only take expenses up to the amount of your income for the year.
If you don't want to keep detailed records of business use, your other option is to buy the boat or airplane personally, giving up the depreciation and expense deductions. This saves a lot of time with your tax advisor, too. Just enjoy the boat, occasionally using it for business.
You might explore other ownership options, such as co-ownership or setting up the ownership as a partnership. Even if you set up a business to own the boat or airplane, the same tax restrictions apply. Because every business situation is different, and the tax laws may change, check with your tax professional before you buy a boat or airplane for business use.