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Old 10-20-2013, 12:39 PM   #21
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Keep on going, John. I think you are doing a great service to this site by sharing the process.
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Old 10-20-2013, 12:49 PM   #22
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Keep on going, John. I think you are doing a great service to this site by sharing the process.
We're lucky to have you aboard!
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Old 10-20-2013, 01:17 PM   #23
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My point for mentioning the broker was really just tying the two threads together since it has been a recent hot topic. I do realize a broker cannot fill out personal information but they can provide a pool(insurance,banks,etc.) of marine professionals for you to choose from. I have no doubt your guy is excellent. I was just making a generalization and tying it all into recent events...

Ironically, my broker set me up with a finance guy that had the entire loan app filled out except the personal stuff(SSN,signature,etc). I thought that was a nice touch. The finance guy also set up the insurance which ended up being quite a deal. He did the research and had the binder done without me lifting a finger. For as cheap as my boat ended up being, the broker and other folks really bent over backwards!!!
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Old 10-20-2013, 02:32 PM   #24
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I agree with that this thread really does serve to 'lift the veil' so to speak for the new members both current and future looking to fulfill their dream of boat ownership. We may even look into making this thread a 'sticky' at the top of the Classified section upon its conclusion so as to be easily located for future new members wishing to learn more about the purchase process.

Great stuff, thank you for sharing.
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Old 10-23-2013, 09:11 PM   #25
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Update 10/23/13: Tomorrow is the sea trial and inspection. Jeff Merrill of PAE and I plan to meet at 0630hrs for breakfast then we go to the boat to meet the owner and inspector. A few simple things I discovered today included to bring cash to pay the inspector, check to pay the owner for the insurance binder in support of the haul out and of course credit card to pay the ship yard for the haul out. All these costs and we haven't decided if the boat meets all our requirements. This is one reason to have a very good feel about a used boat prior to committing to the process. I have to leave the boat around noon so Jeff will stay behind probably until 7pm to insure everything gets done with the inspection. It will be a solid 12 hour day for most parties. If this was a larger boat we would have planned two days. Everyone else is standing by for my approval to close the deal. If all goes well we should be done the first of November. Will keep you posted.

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Old 10-23-2013, 11:33 PM   #26
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John,
What is the purpose of setting up an LLC in regards to a boat purchase?
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Old 10-24-2013, 12:04 AM   #27
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John,
What is the purpose of setting up an LLC in regards to a boat purchase?
Reduce taxes significantly.
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Old 10-24-2013, 12:06 AM   #28
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Reduce taxes significantly.
What taxes? Sales? Property? Please elaborate. I am also in CA.
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Old 10-24-2013, 12:12 AM   #29
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What taxes? Sales? Property? Please elaborate. I am also in CA.
I'd rather John answered the specifics of your question but I think it relates to the sales tax.
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Old 10-24-2013, 06:25 AM   #30
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I am as curious about the LLC too. States are wise to documented-only vessels avoiding sales tax regardless of ownership. My insurance was cheaper because we own personally according to my broker. Many people own second homes as LLCs where we live and I haven't figured out why.

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Old 10-24-2013, 12:15 PM   #31
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John, since we are making this an educational thread, are you using an engine surveyor? I realize there is only one engine and it is "relatively" inexpensive as it relates to the cost of the rest of the boat. So you may be accepting the risk of not using an engine surveyor.

Just for people reading this, if you are buying a boat with bigger engines and maybe there are two of them, it is usually a good idea to use an engine surveyor....another expense in the buying process.
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Old 10-24-2013, 12:36 PM   #32
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John,
What is the purpose of setting up an LLC in regards to a boat purchase?
An LLC offers a layer of protection and flexibility to the vessel owner. The LLC owns the vessel as its sole asset, and (if there is litigation against the vessel) the assets of the LLC are the only things that can be attached.

If there is a multiple ownership scenario, owners can buy into or sell their interest in the LLC without vessel titling/registration being affected, because the LLC owns the vessel.

THere may be some tax advantages of an LLC, and that would best be taken up with the tax professionals.
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Old 10-24-2013, 04:46 PM   #33
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I can provide a bit of an answer to the LLC question. As a tax attorney who deals with boat owners, this issue comes up quite a bit. For a boat owned by a person or a married couple, I do not find many, if any, benefits to an LLC. Peter mentioned the chief one-limitation of liability. As he noted, in general any claims against the LLC are limited to the assets of the LLC, thus sheltering personal assets from any liability claims. That said, that is not a given. Someone with a claim against the LLC can successfully convince a court that the normal corporate protections do not apply. While not easy to do, it can be done, it is a bit easier where the LLC owned by an individual or a married couple.

There are no real income tax benefits for an LLC owned by an individual or a married couple. For federal tax purposes. the LLC is ignored and all tax effect, good or bad, flow directly to the owners.

As also noted above, insurance may be a bit more expensive for an LLC than for a directly owned vessel. Peter can provide a better answer than I can.

The real benefit comes when the boat is sold. You have a choice of either selling the boat itself, or selling the LLC. By selling the LLC, you in effect transfer ownership of the boat to a new owner, but, in most jurisdictions, avoid sales tax on the sale (some states have an excise tax on stock sales) and you avoid a lot of paperwork hassle, i.e. documentation, etc. No new documentation is needed (although a change in ownership must be filed) as the boat is still owned by the LLC.

There is an administrative cost to having an LLC as well.

As Peter noted, if the boat is owned be several people, or is used in any commercial way, charter, etc. there are very substantial benefits to the use of an LLC.

If you are considering an LLC, a good tax advisor can give you more detail.
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Old 10-24-2013, 06:42 PM   #34
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I have a C corp and was thinking of putting a boat in that. Not really for liability protection but in an attempt to depreciate the the boat and offset some income of the C corp. This C corp is not my main business.

Was thinking about using the boat as an office and expense the slip, insurance, bottom jobs, other expenses. This C corp generates a little income in the car financing business-- can a finance company have a boat for an office?

Anyone done something like this?

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Old 10-24-2013, 08:36 PM   #35
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I have a C corp and was thinking of putting a boat in that. Not really for liability protection but in an attempt to depreciate the the boat and offset some income of the C corp. This C corp is not my main business.

Was thinking about using the boat as an office and expense the slip, insurance, bottom jobs, other expenses. This C corp generates a little income in the car financing business-- can a finance company have a boat for an office?

Anyone done something like this?

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I can answer that one, not as a tax professional but as a business owner that has consulted with his tax CPA.

I run a profit making company that is not related to the marine industry, nor can the boat be used as part of my business except as a remote office.

My CPA is a large boat owner as well, and is well versed with the issues at hand.

The costs of setting up and maintaining a remote office is 100% deductible as a legitimate business expense. In my case that included satellite communications equipment, cellular communications equipment, network equipment, computer, etc... including recurring costs for the service to support that equipment.

If I had a dedicated portion of the boat, say a cabin that was exclusively used to conduct business I could sign a lease agreement with my company for that space. The space could then be depreciated on a percentage of the purchase price of the boat. The problem is I do not have a space that is exclusive for business functions so we decided to not go that route. The rents would flow back to my personal income as unearned income, so its awash tax wise.

When I asked her if I could in any way write off moorage, maintenance, or any other boating expenses, she advised strongly against it. She indicated that if I owned a much larger business, and needed the boat to entertain prospective clients for example, that would be possible, but not at my business income level.

I asked her about doing some commercial shrimping (Yes Bret I asked about shrimping), or part time chartering as a way to incorporate my boat into a business plan, and write off the expenses.

I was told that the IRS uses a simple test to differentiate hobby from business. That test is that a legitimate business has to have a reasonable expectation of being able to make a profit.
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Old 10-24-2013, 08:50 PM   #36
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The real benefit comes when the boat is sold. You have a choice of either selling the boat itself, or selling the LLC. By selling the LLC, you in effect transfer ownership of the boat to a new owner, but in most jurisdictions, avoid sales tax on the sale
As I said in post # 29....When you go to sell the boat, by selling the LLC the new buyer can save a ton in sales tax, thus making the deal more attractive.
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Old 10-24-2013, 09:50 PM   #37
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As I said in post # 29....When you go to sell the boat, by selling the LLC the new buyer can save a ton in sales tax, thus making the deal more attractive.
The OP seemed to imply it would save him taxes- what taxes is he referring to?
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Old 10-24-2013, 09:54 PM   #38
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cardude-Kevin covered it pretty will, not much I can add. As with vacation homes, boats are a hot button item for the IRS. Any boat on a tax return, unless the business is a marine business, is liable to draw some enhanced scrutiny. Generally, as Kevin decided, the potential tax benefits are not worth the risk.
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Old 10-25-2013, 01:42 PM   #39
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Response to question on purpose of LLC: I'm pleased to see all the talk about LLC ownership and everyone's willingness to provide information on the subject. I do not have anything to really add except that our reasoning is the layer of liability protection (subjective, yes) and the bonus at resale time. We believe we can sell the boat for a little more with an LLC especially if the buyer is from California. We have successfully used an LLC to avoid state sales tax on N4050 by taking the boat out of state for a specific period of time but that is not in the cards for us this time around. Will comment on the sea trial and inspection next.
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Old 10-25-2013, 02:42 PM   #40
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For John, the LLC does makes sense on the sale issue. Many states on the East Coast, Florida and North Carolina in particular, have an upper limit on sales taxes on boats. Not only is that not the case out here on the Left Coast, but sales tax rates tend to be higher. For instance, depending on the local jurisdiction, here in WA, the sales tax rate can be as high as 10%. In Seattle, it is 9.5%. So, on a $1.5M boat, that sales tax bill is $142,500, it is collected when you go to register the boat (unless the broker/escrow agency has collected it as a part of the sale). Rates are similar in much of California. Being able to save a buyer that big hit can have a substantial effect at sale time!
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