We all know that a great amount of depreciation occurs the moment you back your new boat out of the slip, but do you really know what your boat is costing you each year in depreciation? In this post we’ll explore both the up front and underlying factors that cause deprecation. You may soon realize that if you are not using your boat much, selling it may be the best course of action.
Types of Depreciation
We can break down depreciation by observing how it is calculated for accounting purposes.
Generally Accepted Accounting Practices
There are three ways a CPA can depreciate a boat on the books:
- Sum of Year’s Digits. This is computed by finding the cost of the boat, then estimating the useful life of the boat and how much it is worth at the end of that useful life. A formula is then used to calculate the annual depreciation.
- Straight Line Depreciation. This type of deprecation calculation is arrived at by starting with the cost of the boat, then estimating the useful life (in years) as well as what it would be worth at the end of its useful life when you try to sell it.
- Declining Balance Depreciation. For declining balance depreciation, enter the cost of the boat, then enter useful life and figure a rate that you’d be comfortable depreciating the boat at per annum.
Useful Life vs. Using It
There is something to be said about useful life of the boat vs. using the boat during my life. If you are reading this article and your boat is stored and you haven’t used it this past summer, think hard about if a different type of boat may be better suited for you and your families needs or if simply selling now may be the best option.
One litmus test to use is this: Are there any other areas where having the money in your pocket, instead of sitting in storage, could be used? If the answer is yes, it may be time to consider brokering or selling your boat outright.
Other Factors to Consider
If you haven’t used your boat in a while, then it may be time to consider other associated costs and why this article may serve as a wake-up call to possibly sell your boat now.
Storage
If your boat is in storage right now, it will remain there until at least late spring – if you use it at all this year. You can avoid another 4-12 months of storage fees right off the top.
Another year older
If you wait until spring, it will be another year older on the books which means more depreciation. You can roughly see “10% depreciation in the first year and ~7% for each year after.
Fees/Permits/Insurance/Registration
Tally up the costs and see what these are running you. Do you really want to renew them for another year of non-use?
Fuel and Ethanol Related Problems
Nowadays storing anything for over six months causes major headaches with respect to engines and motors. With ethanol additive being put in our fuel at just about every known filling station, this presents major issues for storage of anything with a motor. Ethanol is known to gum up fuel systems, damage fuel tanks and create phase separation caused by moisture. Finally, you may already realize that alcohol absorbs water. Water in your fuel system will eventually lead to corrosion. Additives, aside from their own claims, do not work as well as advertised. The bottom line here is that if your boat either stored or not being used, you may very well start seeing the effects of this “gasohol” fuel.
The Takeaway
If after weighing the pros and cons, you decide that keeping your depreciating boat isn’t making financial sense, act now. You can put your boat up for sale yourself or connect with an experienced brokerage like Yachts360 who will guide you through the process. If you want to sell your boat and sell it fast, our team is ready to assist. Just give us a call!
FAQs
Find the current value: Research similar boats in the used market to get an idea of how much your boat is currently worth. This will be the boat's current value. Calculate the depreciation amount: Subtract the current value from the initial value. This gives you the amount the boat's value has depreciated.
What is the standard depreciation rate for boats? ›
ATO Depreciation Rates 2023
| Name | Effective Life | Diminishing Value Rate |
|---|
| Longer than 10 metres | 20 years | 10.00% |
| Not longer than 10 metres | 15 years | 13.33% |
| Inflatable boat s (excluding rigid hull inflatable boat s) | 7 years | 28.57% |
| Pedal boat s | 10 years | 20.00% |
23 more rowsThe general rule of thumb on a new boat is 15% to 20% depreciation in Year 1 with each subsequent year of around 10% until Year 7 when values tend to stabilize and fall only marginally after that. However with catamarans it tends to be closer to 10% in Year 1, 7.5% in Year 2 and 5% annually after that.
Do yachts appreciate or depreciate? ›
Generally, new yachts will depreciate the most in their first three years, but that doesn't mean it needs to be much. As long as you set out a rigorous maintenance schedule and have a good crew at hand, this can minimise how much the value of your yacht decreases.
What is the 10% rule for yachts? ›
I'm sure most of us have heard of the "10% rule": a boat costs about 10% of the purchase price to maintain per year. It's usually said in the context of used boats, and it rings true to me. There's another rule thrown around which suggests "2% of the price when new" is the rule.
Why are yachts a tax write off? ›
It was designed to help small businesses as they set out to buy or lease new or used equipment. It allows a taxpayer to deduct the cost of certain types of property (such as a yacht) on their income taxes as an expense, rather than requiring the cost of said property to be capitalized and depreciated.
How long does it take to depreciate a yacht? ›
You can depreciate the adjusted cost basis of your yacht (the balance of the purchase price after deducting the Section 179 expense deduction and 50% bonus depreciation deduction) over 10 years; plus.
How do you calculate the market value of a boat? ›
Much like the Kelly Blue Book is used for valuing automobiles, there are three different price guides used for valuing boats: NADA Marine Appraisal Guide (Now J.D. Powers), BoatWizard's SoldBoats database and the ABOS Marine Blue Book (Published by Price Digests).
How much do motor yachts depreciate? ›
In terms of depreciation, here are some rough estimates for a new yacht: Year 1: About 10% depreciation in the first year. Year 2-6: About 5-8% depreciation per year. Year 6+: About 1-3% depreciation per year.
Do yachts go up in value? ›
Luxury yachts can provide an extremely rewarding return on investment when purchased at a reasonable price and well maintained over time. Luxury yachts in particular often hold their value very well. It's not uncommon for luxury yachts to go up steeply in value, especially if they've been well kept and improved on.
First off, the age and condition of your boat are clearly essential components on the value of a boat. Just like with cars, newer boats generally command higher prices. However, a well-maintained older boat can still grant a good price, emphasizing the importance of regular upkeep and maintenance.
What type of asset is a yacht? ›
Is buying a yacht a good investment? Unless you are running a business financing, operating and/or renting out yachts, a yacht is not an investment but an asset. Moreover it is a depreciating asset that comes stapled with significant operating costs.
Why don't boats depreciate? ›
Vessels situated in areas with extended boating seasons or near sought-after waterways tend to preserve their value more effectively due to the greater opportunities for use.
Do rich people buy yachts? ›
The wealthy have been buying up yachts and jets without having to put much cash down. It's a no-brainer to borrow against these luxury toys rather than sell stock and pay heavy taxes. Bankers from Bank of America, JPMorgan, and Northern Trust explain how it works.
What is the ideal depreciation rate? ›
Depreciation Rates for FY 2023-24 for Most Commonly Used Assets
| Sl. No | Asset Class | Rate of Depreciation |
|---|
| 2 | Building | 10% |
| 3 | Building | 40% |
| 4 | Furniture | 10% |
| 5 | Plant and machinery | 15% |
9 more rowsDec 28, 2023
There are no "hard and fast" rules on exactly how quickly you must depreciate your tangible assets. Your accountant can provide you with some guidance, but a useful rule of thumb is: Plant and machinery — expense around 15% - 20% of the overall value a year, with a full write-off over 5 to 7 years.
What is the average depreciation value? ›
On average, cars lose around 10 to 15 percent of their value per year, with higher depreciation rates near the beginning of the vehicle's lifespan. But some cars lose value faster than others: according to Edmunds, new cars lose between 6 and 45 percent of their value in the first year of ownership.
How to calculate the depreciation rate? ›
The depreciation rate can also be calculated if the annual depreciation amount is known. The depreciation rate is the annual depreciation amount / total depreciable cost. In this case, the machine has a straight-line depreciation rate of $16,000 / $80,000 = 20%.
Types of Depreciation