The Yacht Tax Structure Everyone Talks About, and the Part Nobody Explains

Over several years of working with clients across Europe and the United States, we kept watching the same thing happen. A client would be introduced to a compelling tax structure, nod along to the headline, and then be left entirely alone with the execution.

“We keep meeting people who have been sold a number,” says our founder, Cornelius Kistler. “Nobody stays in the room long enough to explain what it actually takes to make that number a reality. And by the time we get involved, the damage is already done.”

So here is the full picture: the opportunity, the limits, and what it takes to make it hold.

What the structure actually is

The structure at the centre of this conversation is 100% bonus depreciation under §168(k), made permanent by the One Big Beautiful Bill Act, signed into law on July 4, 2025, for qualifying property acquired and placed in service after January 19, 2025.

Put simply: for the right buyer, structured correctly, a yacht placed into a legitimate charter business by December 31st can produce a first-year deduction equal to its purchase price multiplied by its documented business-use percentage. That deduction has the potential to offset income in the year of a major liquidity event, subject to the annual limits described below.

Unlike §179 expensing, which is capped and cannot create a loss, §168(k) can generate a loss that offsets other income, provided material participation requirements are met.

The limit most versions of the story leave out

That offset is not unlimited, and this is the caveat most versions of this story leave out.

The excess business loss rules under §461(l), which the same legislation made permanent, cap the amount of business loss that can be deducted against wages and investment income in a single year: roughly $256,000 for single filers and $512,000 for joint filers in 2026. Anything above the cap is carried forward as a net operating loss into future years, rather than landing against the liquidity event itself.

State tax adds a second layer. California does not conform to federal bonus depreciation, and New York has also decoupled from it. For buyers in the two states where most of this year’s liquidity is concentrated, the benefit applies at the federal level only.

The structure remains genuinely powerful. But it works over several years, not in one, and it needs to be planned that way from the start.

Why 2026 is a relevant year

What makes 2026 unusually relevant is what is happening in the market around it. A confluence of technology liquidity events, including public listings, secondary processes and tender offers involving some of the most valuable private companies in the world, is expected to produce meaningful concentrations of newly realised income among employees and early investors across a specific set of zip codes in California, New York and a handful of other states.

Some of these events involve companies whose employee counts and equity distributions are significant enough that the resulting tax burden, falling entirely within a single calendar year, creates a genuine and time-sensitive planning problem for a large number of people at once.

“This is not a normal year for liquidity,” says Cornelius. “The number of people sitting on a significant income event right now, with a December 31st deadline and no structure in place, is unlike anything we have seen in recent memory.”

The opportunity is real. The execution is where it gets complicated.

“The version of this story that circulates online skips the part where it actually has to work as a business,” says Cornelius. “Get that wrong and you have not avoided a tax bill. You have made it significantly worse.”

The requirements are specific, and they are ongoing:

• Business use above 50%, every year. It must be documented annually, not only in the year of acquisition.
• Material participation under §469. This must be demonstrated every year.
• Genuine third-party charters at fair market rates. The IRS does not look favourably on arrangements where an owner effectively charters to himself, and the operation must be run with a genuine profit objective rather than as a subsidised hobby.
• Strict limits on personal use. Personal use beyond 14 days per year, or 10% of the days the vessel is chartered to others at fair market rates, whichever is greater, causes the vessel to be treated as a residence under §280A. That limits deductions to charter income and eliminates the loss that makes the structure work.
• Predominantly US waters. A yacht operated primarily outside the United States is generally ineligible for bonus depreciation, subject to narrow statutory exceptions. In certain cases, use in US territories such as the US Virgin Islands and Puerto Rico can also qualify.

One detail worth knowing: the vessel’s own AIS transponder, which larger commercial vessels are required to carry, can be cross-referenced against charter logs in an audit. The boat itself becomes a factual witness to whether the operational record holds up.

The exit needs a plan too

§1245 recapture applies on eventual sale, bringing prior depreciation back as ordinary income to the extent of gain on the sale, at rates up to 37% federal before state tax.

The structure is a deferral, and a powerful one when executed with a proper exit strategy. But for anyone who entered it expecting permanent tax elimination and sold the vessel within a few years, the consequence is an accelerated liability rather than an avoided one.

Getting the structure materially wrong carries consequences well beyond a simple correction: full reversal of deductions, back taxes, interest, a 20% accuracy penalty, and civil fraud penalties of up to 75% in cases involving intentional misrepresentation.

“The people who get this right do one thing differently from the people who get it wrong,” says Cornelius. “They treat the structure as the primary decision and the boat as the secondary one.”

How we work

We work in coordination with our clients’ existing US tax counsel and CPAs. Our role is structuring discipline and vessel expertise, not the tax opinion.

“We are not in the business of selling headlines,” says Cornelius. “We are in the business of making sure the structure holds when someone who is not rooting for you decides to take a closer look.”

Disclaimer: This article is provided for general informational purposes only and does not constitute tax, legal, accounting, or investment advice. breezeYachting.swiss is not a law firm, CPA firm, or tax advisor, and nothing here creates an advisor-client relationship. The rules described, including bonus depreciation under Section 168(k), the passive activity rules under Section 469, and federal and state loss limitations, are complex, subject to change, and depend entirely on individual facts and circumstances. Most buyers will not qualify for the outcomes described, and loss limitation rules and state tax differences may materially reduce or defer any benefit. Consult a qualified US CPA and tax attorney before making any purchase, structuring, or tax decision. breezeYachting.swiss accepts no liability for actions taken in reliance on this content.