Sunreef Yachts US Sales Director Talks Tax Depreciation

Hi everyone, this is Robert Riva. I'm the US Sales Director for Sunreef Yachts, and today I have a very special guest with me. Julio Gonzalez is a national tax reform expert. You may recognize him from his frequent appearances on nationally televised networks like CNN, Fox, and CNBC. Today we're going to discuss how some high net worth individuals are taking advantage of unique strategies to depreciate the purchase price of their vessel, save on taxes, and basically turn taxable liabilities into down payments on yachts. So with that, I'd love if you could maybe just chat a little bit about, you know, the type of client you work with and what that typical profile looks like for your ideal client.

Yeah, I mean, this is an exceptional time. I mean, where the tax program allows an investor to buy into your program, right, which is one of those most amazing catamarans in the country, and get to fully deduct the purchase price day one. So let's go through an example, right? Yeah, please give me a typical purchase price.

$5 million.

$5 million. So we have an investor that comes in and he buys the catamaran for $5 million. So he's going to take a $5 million deduction same year of the purchase and that's going to offset $5 million of taxable income. So it's an amazing program. Now there's urgency, right? Because right now we get to deduct 100%. That program phases out under our current IRS rules over the next few years, but this year is probably the most optimal year because we still get the full expense, the $5 million. And then how that program works is though, to have it be an active write-off, you have to have it into a charter business. Sure. So why don't you explain how you, 'cause if you're just buying the boat and it's just for personal use, there's no tax benefit, right? You can't expense that. Right.

So yeah, that's a very minor sort of prerequisite, right? So the majority of what I've seen is our owners will buy these vessels, put them into a management company, and advertise them, make them available for charter. And as a result, because they're a business operating, you know, with the intent to create a profit, through the business of charter, they can then depreciate, as you mentioned, the entire purchase price of the vessel in year 1. So a lot of times I'm seeing C-level executives or entrepreneurs that are exiting businesses and just, you know, typical high earners between, you know, $2 and $10 million a year annual income. And they'll say, wait a second, so you're telling me instead of paying the IRS a $1, $2, $3 million check, I can buy your boat and pay them nothing? And that sounds like exactly what you're saying. I mean, I say it, but it's another thing to come from a nationally recognized tax reform expert like yourself. That's correct, right?

That's the rules we have today. Again, there is a little bit of urgency because these rules are set to expire over the next few years. But today, 100% immediate expensing, the $5 million. So that $5 million comes right off the taxable income, right? So you're saving basically $2.5 million in cash. That's cash that would have gone to the IRS. That $2.5 million now you put down on that $5 million.

And what's even more interesting is you put that $2.5 down on the $5 million yacht, sailing catamaran, power catamaran, whichever you choose, and then you can finance the rest, right? The remaining $2.5 million. And between your interest, the crew, the docking, the insurance, all the other fees and costs associated with owning the vessel, you put it into charter, and typically that break-even on what that monthly cost will be to carry that note and all the other expenses is around 8 to 10 weeks of charter. So there's a very real possibility that you own the yacht for nothing down because it was money you would have otherwise paid to the IRS, and then you're really paying nothing per month because the charter income is offsetting your expenses. And so you're able to sort of own this beautiful, fun yacht that has all these qualitative benefits for your life, right? Bonding with your family, escaping, getting out, breathing fresh air, and really just enjoying, you know, the Caribbean or the Mediterranean. And you're able to do it for free. Sounds like clickbait, it's really not. Like, right?

And so you guys handle the charter?

We do, right? And I actually say that no catamaran, no boat really charters better than a catamaran, and no catamaran charters better than a Sunreef. And that's just a function of the scarcity in the market. There's not that many of them. And the size, right? People love that size, the space, the luxury finish. We're the highest quality sort of Rolls-Royce of the space, as you know. So it's that sort of perfect niche for, you know, people that want to get out on the water in lux. And there's just never a shortage of demand. If anything, there's a shortage of supply. So charter markets are pretty booked out until 2022. So when did you say this ends? Like, people need to sort of make this decision if they want the bonus depreciation, by when?

Well, bonus depreciation right now, it's 100%, right? So it gets 100% and then it goes down a little bit next year and then it phases out over the next 3 years. So I mean, that's the issue. I mean, I would do it now because this year you get to do all 100%. And you know, I guess the issue now is the timing, right? Because you want to have this purchase done by the end of the year. You have to buy it in the year that you're going to take the deduction, right? We get 100% off this year. So you have to have some lead time, right? Because you want the deduction this year, but hopefully you can deliver it this year. I mean, what's that lead time? I mean, 'cause that's the important part here.

It's a great question. So we have December slots available for only a few of our vessels, but in 2022, they can still take the 100% write-off, right? It tapers down in 2023.

Is that correct? That's right.

So yeah, so for a 1-year delivery, everyone's okay, but you gotta make a decision sometime in the next 6 months if you wanna take advantage of this particular 100% write-off.

Yeah, I mean, listen, I say this year is urgency because they can always change the tax code, right? So, right, so they're going to look at changing the tax code in October. We don't know what they're going to do.

Wow.

They could repeal tax reform. Clearly they're not going to repeal this year, right? So this year is in the books. They could repeal, they could go, it could change. I don't think it's likely that they'll mess with this, but you never know. So I would say that, listen, do it this year. I think we'll be safe for next year, right? I mean, but we got to hope on that, right? We don't know what Congress will do. And so I would at least get it into play, get it into purchase mode.

Well, listen, I can't thank you enough. Julio and I work very closely. Anyone that comes to me that doesn't know these rules exist, which I'd say is more than 50% of the people I'm speaking to, I always refer directly to Julio. And sometimes they end up firing their CPA and switching to someone else, and sometimes they end up keeping them. But most of the people are not happy to hear this from us as opposed to their existing CPA. I'm going to tell you that. I've seen that first case.

Yeah, and just so you know, we work with your CPA firm, right? We're just a tax specialty firm. We do the ruling, we do the depreciation studies, we put that report for you guys to take in hand to your accountant and CPA so that you can take the full deduction. So we're really the friend of the CPA and the accountant and your accounting team and working hard to make sure that you guys fully take the benefit and have the sign-offs that make the accountant and the customers comfortable taking that position on a tax return. Perfect.

Thanks again.

Okay, my pleasure.

Appreciate it. Until next time.