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post #1 of 3 Old 05-31-2011 Thread Starter
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Tax deduction help.

I know I need advice from a tax professional /accountant, but wanted to post here to get thoughts and input.
Figured someone here is in similar situation.
I purchased a boat that I keep in the BVI.
It's uscg documented. Not registered in the states. Didn't pay sales tax and don't have any form of usage tax etc.
I keep it with a charter company there and use it 6-8 weeks a year for my own use.
I have a mortgage on the boat.. It has 3 staterooms, 2 heads and a galley. Which fits the requirements as a 2nd home.
Is the interest tax deductible? Does it make a difference if it is in another country? Is the interest deduction allowed if I have it in charter?
As far as having it with a charter company.. Do I need to form a corporation and do taxes that way or is it fine to just keep as individual and add it to my tax returns.
I've used plastic to pay for all expenses so have paper trail of everything.. And at end of year do I just add up income it created subtract my costs and then either pay taxes on the gain or write off the loss against my income?
And what about asset depreciation. Plan is to keep the boat for a few years then sell it and buy newer boat and do same thing
Does it make sense to depreciate it year by year or wait until I sell it and take it then?
Figured other then keeping a paper trail now and worrying about it at tax time I should start planning ahead. Especially if I do need to form a Corp or do it as a business etc.
Thanks in advance for replys.
And if anyone has a tax pro they recommend.. I live in Atlanta.
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post #2 of 3 Old 05-31-2011
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You are right, you really need to talk to your tax professional.

To answer some of your questions.

You either have a business or a second home. You cannot claim both on your taxes. Certainly you can use it as a second home even if it is in the business, but not deduction for both. You can also write off some travel to visit your investment business, but not every trip to the islands. In addition, you cannot depreciate a second home, but you can depreciate a business asset.

This is a passive investment with little chance of actually turning a profit. The government will over time apply some tests to the investment, but it should not be a problem. You will need other passive investments that actually make money to deduct your losses. You cannot legally take them off your regular income.

This type of passive investment usually only pays off when you sell it. You can depreciate the boat over time and show normal revenue and expenses and when you sell the boat it is all deductible from your taxes going forward. You just have to get there. However, the lesser of depreciation or actual sales figures will determine the actual available tax advantage.

I would definitely incorporate in a LLC, or whatever seperates this from your personal assets. That might be something else in the BVI's but you want to seperate the liabilty from your other assets.

Good luck.
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post #3 of 3 Old 05-31-2011
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The IRS actually has a pretty good FREE telephone support line, they'll be able to tell you the federal tax options.
If Georgia has no use tax, or other tax that might be applied to you (with penalty if the tax is dodged) then your only other questions are business matters.
"As far as having it with a charter company.. Do I need to form a corporation" Among other things, a corporation can provide liability protection. You should be able to find a "tax attorney", someone who is both a business attorney and CPA, who can go over the options you have, including Georgia taxation and liability issues.
What he may very well recommend is putting the boat into a chartering business (or a business that leases it to that charter company you're working with, etc.) and then when you want to use the boat--YOU charter it just like any other paying customer. This provides an "arm's length" relationship, which the IRS likes to see to ensure it really is a business, not a hobby or a dodge. So you're paying to charter your own boat, no big deal, you get your money back in terms of charter profits if it works out. Private aircraft owners often do the same thing. It keeps taxes, liability, all the other issues neat and clean for the authorities.
If you don't, and you just "use" it when you want it, that can change the status for business and tax matters (i.e. you can only use "rental" property for your own use for limited periods then things change) and keeping the business at arm's length ensures that problem won't come back to get you.
There must be some yacht brokers in Georgia, maybe a few phone calls can get you a referral to someone with the right credentials to set up the business.
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