Can I write off my yacht?

Where the claim comes from

The pitch usually starts with depreciation: buy an expensive asset, use it for business, and deduct its cost, sometimes all in the first year through bonus depreciation. A yacht is then presented as a place to host clients, so the whole cost supposedly becomes deductible.

Some versions add that the yacht can double as a floating office, or that forming an entity to hold it makes the costs business expenses. Neither changes how the Code treats property used for entertainment, amusement, or recreation. Holding the yacht in an LLC or corporation moves the deduction question to that entity; it does not answer it.

The depreciation rules are real. The mistake is skipping the step that comes first: whether the Code allows any deduction for this kind of property at all.

What the law actually says

IRC §274(a)(1) provides that no deduction otherwise allowable is allowed for any item with respect to an activity of a type generally considered to constitute entertainment, amusement, or recreation, or with respect to a facility used in connection with such an activity. Before 2018, some entertainment could still be deducted if it was directly related to or associated with the business. The Tax Cuts and Jobs Act removed that exception for amounts paid after 2017, and Treas. Reg. §1.274-11 now implements the entertainment disallowance.

Treas. Reg. §1.274-2(e)(2)(i) gives examples of property that can be an entertainment facility, and the list begins with yachts. Treas. Reg. §1.274-2(e)(3)(i) says the disallowed expenditures include depreciation and operating costs, maintenance and repairs, insurance, and salaries of caretakers, and it also covers losses on the sale of the facility.

A boat is also listed property under IRC §280F(d)(4), because it is property used as a means of transportation. Even where a boat is used in a business, the substantiation rules of IRC §274(d) apply, and bonus depreciation or §179 expensing requires more than 50% qualified business use under §280F(b).

What is true and what is not

Here is where the claim breaks down, and where it does not:

• Not true: a yacht used to entertain clients, employees, or prospects is deductible if you keep a log. The facility rule disallows the costs no matter how carefully you document the entertainment.
• Not true: you can depreciate what §274(a) disallows. Depreciation is one of the expenditures the regulation lists.
• True: bonus depreciation is available again at 100% for qualifying property acquired after January 19, 2025, under changes made by P.L. 119-21. That does not override §274.
• Partly true: a vessel held in a genuine charter business, rented to unrelated customers at market rates, can generate deductions under §162 and §167, subject to §274(e), §280F, the passive activity rules, and the hobby-loss rules of §183.
• Separate point: interest on a loan secured by a boat with sleeping, cooking, and toilet facilities can be qualified residence interest if the boat is your second home. That is a personal itemized deduction, not a business write-off.

What to do instead

If you want a yacht for personal use, plan for it as a personal purchase and fund it accordingly. If you are considering a charter business, have the economics reviewed before you buy: rental activity, expected revenue, personal-use days, who manages the vessel, and whether the losses would be passive.

If you already own a vessel and deducted its costs, gather the records now: purchase documents, logs showing who was aboard and why, charter agreements, and the returns where deductions were claimed. Those records show whether any part of the use falls outside the entertainment rule. Where prior deductions were not allowable, amending the returns is generally cleaner than waiting for an examination.

Also think about an eventual sale. The deductions you claimed and the vessel's basis need to be tracked correctly, because they affect the gain or loss you report when the vessel is sold, and a loss on a facility is itself one of the items the regulation disallows.

If you are looking for deductions tied to real business needs, look at equipment and property your business actually uses to produce income, where cost recovery under §168 and §179 works as intended.

How ebotCPA helps

We review the facts of a proposed or existing vessel arrangement, identify which rules apply, and explain what is and is not deductible, including whether prior-year deductions need to be corrected.

Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.

Primary sources

1. 26 U.S.C. §274(a)(1). Entertainment activities and facilities.

   “of a type generally considered to constitute entertainment, amusement, or recreation”

   Denies deductions for entertainment activities and for facilities used in connection with them.

2. Treas. Reg. §1.274-2(e)(2)(i). Examples of entertainment facilities.

   “Examples of facilities which might be used for, or in connection with, entertainment include yachts, hunting lodges, fishing camps, swimming pools, tennis courts, bowling alleys, automobiles, airplanes, apartments, hotel suites, and homes in vacation resorts.”

   Identifies yachts as an example of an entertainment facility; §1.274-2(e)(3) includes depreciation among the disallowed costs.

3. Treas. Reg. §1.274-11. Disallowance of entertainment expenditures after 2017.

   Implements the post-2017 rule that entertainment expenditures, including those for facilities, are not deductible.

4. 26 U.S.C. §280F(b), (d)(4). Listed property.

   Treats property used for transportation as listed property and limits accelerated cost recovery unless business use exceeds 50%.

5. 26 U.S.C. §274(d). Substantiation requirements.

   Requires adequate records or corroborating evidence for listed property expenses.

Frequently asked questions