| Because of the new tax bill there are now a lot of new unknowns
in this area. Not that anyone really understood it before.
As part of my 'new boat every year' strategy, note tongue planted
firmly in cheek, I have had some dealings with someone who wants
to buy my boat and place it in the Hinckley Charter fleet.
Conversations between Hinckley Charter, their accountant, the buyer,
and his accountant has produced much speculation and only a few
estimates of what's really going to happen.
This much seems firm: At least $10K worth of tax credits (not
deductions) has been lost, depreciation benefits significantly reduced
and that charter rates will probably have to be increased by 30%
to reflect these losses.
If you're asking how the scheme used to work I think that there
are notes on the subject. If you like, I think I've got Practical
Sailor articles on it also which I could copy for you.
John_R
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| I believe that it is virtually impossible to show a long term profit
chartering your personal boat. Neglect the tax laws for a moment and
consider the following.
I'd like to own a Valiant 40. A new boat, fully equipped, would be in
the vicinity of $200000. Assuming a 15 year, 12% mortgage for $160000
implies a monthly mortgage payment of $1920.27. The interest in the
first year would be almost $19000. Assuming a 10 year depreciation life
for the boat gives $20000 per year straight line depreciation. So in the
first year I'd have $29000 in business expense, ignoring operating
expenses. The charter rate for a Valiant 40 would be around $2000 per
week. The charter agent will want a substantial percentage of this --
15% to 50%. The insurance company will want a hefty additional premium
per week of chartering (charters are very risky). If I net $1450 per
week, I have to charter the boat 20 weeks just to cover interest and
depreciation. The New England charter season is maybe 16 weeks long
(more likely 12 weeks). If I send the boat to the Caribbean for the
winter, expenses become horrendous. Even with a less expensive boat,
making a long term profit isn't likely.
And according to my (conservative) accountant, making a long term profit
is what the IRS wants. Otherwise, they will call your venture a hobby
and disallow your deductions with the obvious negative impact on your
bank balance.
We have occasionally chartered our boat, and have simply deducted
expenses to the extent of income. Thus we pay no tax on the income but
we also avoid any expensive discussions with the IRS. Another problem
with the IRS. If you've depreciated your boat to a value less than
what you sell the boat for, you'll have to pay a capital gains tax on
the difference between depreciated value and resale price. And another.
The IRS limits your personal use to two weeks per year if you're calling
your chartering a business.
Charters are risky .... Our insurance company now wants a $130 premium
surcharge per week of chartering (!). Our premium for our personal use
of the boat was $784. We have occasionally chartered our boat, each time
to experienced charterers with excellent references, and each time the
boat has returned with damage ranging from dings in the gelcoat to a
gouged keel from hitting a rock ledge at 5 knots. By the way, the
insurance the boat owner carries will pay him for damage to the boat by
the charterer in excess of the deductible. However, if the insurance
compay thinks that the charterer has been careless, they will sue the
charterer to recover their loss. We once investigated chartering a
Valiant 40 with a $5000 insurance deductible. The owner's position was
'if the size of the deductible bothers you, then you think that you are
not capable of sailing the boat safely'. We explain our very high
deductible the same way.
Alan
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| Re: .2
Not a chance Ed. I've already told Roger Hewson (Pres of Sabre)
that I fully expect to semi-retire in about 9 years to the life
of a charter boat captain aboard a Sabre 50+. Unless of course
I hit the Megabucks, in which case a Little Harbor might come into
the picture.
Re: .3
Alan has perfectly described the problems with chartering for fun
and profit. I had given Reg pretty much the same info offline.
Using an expensive quality boat (Valiant) makes the financial picture
look even worse. Which, I guess, explains why the vast majority of
the charter boat fleet consists of large, but generally cheaper
grade, boats.
John_R
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