Fishing boat depreciation

Forum|Forum|6 years ago
February 20, 2020
11 replies
59 views

My client has a bow fishing charter LLC and purchased a new 22" boat for business only, no pleasure. I am confused as to being able to depreciate the boat using MACRS 5 HY 200%DB method. The client is at a loss for the year for his business so I presume that the boat would not qualify for section 179.

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RichardFairchild

Level 2

You have two basic choices:

1. Use IRC 179 and the deduction is suspended until there is a business profit. If a profit is expected in 2020 you will essentially get all the depreciation over two years. Zero in 2019 and 100% in 2020.

2. Depreciate under MACRS and increase the current year loss, but spread the expense over multiple years.

Consider which method will not only deduct the soonest, but will deduct in the years with the highest marginal tax rate. Why take depreciation now at 10% when it might be deducted at 22% in the future?

Third choice, use a combination of MACRS and IRC 179.

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spb

Level 3

100% bonus depreciation gives the same benefit as Sec 179, but there is no taxable income limitation, but as you said, planning for the timing of the deduction of the cost of business assets is of paramount importance to maximize the tax benefits to be derived. Often, fastest isn't necessarily best.

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PeteTCPA

Level 2

But there could be state issues with bonus depreciation. Many states do not conform to the federal and you will need to add back the bonus depreciation at the state level.

BobKamman

Level 15

The greater the loss the more likely an IRS audit on Section 183 issues. Of course, all fishermen are in business strictly for profit. It's sort of like raising horses, but you can eat the fish.