Vessel Donation Program
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We'd be happy to answer any questions you have, provide free advice and consulting on your available options and which might be most advantageous to you and your family.
Let's assume you're considering donating an older yacht that needs a little TLC but you've had difficulty selling. You also have personal or business tax obligations. You figure your vessel should be worth around $100,000. Start by estimating your total tax obligations of yourself, your spouse, your business, possibly your business partners, children, etc. - anyone with an interest in your boat, automobile, or airplane.
2018 Income Tax Brackets
Rate Individuals Married Filing Jointly
- 10% Up to $9,525 Up to $19,050
- 12% $9,526 to $38,700 $19,051 to $77,400
- 22% 38,701 to $82,500 $77,401 to $165,000
- 24% $82,501 to $157,500 $165,001 to $315,000
- 32% $157,501 to $200,000 $315,001 to $400,000
- 35% $200,001 to $500,000 $400,001 to $600,000
- 37% over $500,000 over $600,000
The 'Realistic Cash Value' or cash savings against taxes is roughly equal to [FMV or size in $ of your deduction] * [your tax rate]. In other words a Donation valued at $100,000 could save you $32,000 realistic cash savings if you were in the 32% Tax bracket.
[Income] * [Tax Rate] = Tax Obligation (Sum Tax Obligations for each person or Business with an interest in the vessel.)
A Charitable Tax Deduction can be 'carried over' Up to 5 years which means you can use all of the deduction in 1 year or any combination of portions of the deduction for any of the next five years.
The deduction cannot exceed 50% of your Tax Obligation for any 1 year.
Let's assume your total tax obligations over the next 5 years of everyone who has an interest in the Vessel or Donation are $200,000 ($40,000 per year). Since each party can only deduct a maximum of 50% of their tax obligations each year, In this example, you can deduct up to $20,000 per year or up to $100,000 over 5 years.
To breakeven, realizing a tax deduction equivalent to the Realistic Cash Value if you were to sell your vessel, Your total tax obligations will need to be approximately $200,000 over 5 years to realize a $100,000 tax deduction. If you are in the 32% tax bracket, the cash value of your tax deduction would be $32,000. However if your vessel was appraised by a Marine Surveyor as having a value of $312,500. (100,000/0.32=312,500), And you could use FMV as justification for your tax deduction, then your deduction would be 312,000 and if you had $120,000 in tax obligations Average per year or $624,000 over 5 years, then you would realize a cash savings of $100,000.
There are 3 methods to determine the size of the tax deduction.
- You donate a vessel or vehicle to a nonprofit who Immediately liquidates it in the wholesale market. Since it needs some repairs it only fetches 50% of what you expected its retail value was or $50,000. Based on changes to IRS law three years ago regarding charitable donations, your maximum deduction is the price the vessel fetched or $50,000.
- You donate the vessel or vehicle to a nonprofit who makes substantial improvements or changes. The Nonprofit sells the vessel in the retail market for $120,000 so you get a $120,000 deduction. However if the nonprofit has not yet sold it, IRS rules allow you to use FMV or fair market value to determine the value of your deduction. A Marine Surveyor appraises the FMV of your vessel in its improved and fully functional condition as $200,000 . If you donated an automobile, you could use Bluebook Private Party Sale Value.
'Realistic Cash Value' 'Total Tax Obligations' / 5 =
You have a vessel that apparently will not sell for $120,000 in her current state. You also have $120,000 in Tax Obligations. You essentially have 3 choices.
- Sell her as is for $80,000 and pay down your bill with the IRS but you still owe the IRS $40,000 + $5000 for past year Marina storage fees.
- Invest $50,000 borrowed from the bank to do necessary repairs, remodeling, and updates to make her more attractive to a buyer and sell her for $150,000. After paying your IRS bill you repay $30,000 of your investment but are still owe the bank $20,000 (at least it's at a lower interest rate than the IRS charges)
- Donate her as is to Inclusive Inc. and we invest in necessary repairs, remodeling, and updates plus value of donations in equipment and volunteer labor. Since we intend to use her for more than 3 years in our mission and operations, The IRS will legally allow you to use FMV or fair market value in determining the value of your donation. Inclusive Inc. will pay for the marine survey and she appraises at $380,000. At a 2017 33% or 2018 32% tax bracket that makes your 'Realistic Cash Savings' equal to $380,000 * 0.33 = $125,400. Additionally we will work with the marina to resolve your $5000 debt for the past year storage.
The 3rd scenario is clearly the winner. With a $120,000 tax obligation 3rd scenario actually puts an additional $10,000 in your pocket, while the first option leaves you owing $44,000 And the second option leaves you owing $24,000. Neither the first or second scenario are a sure thing since they both assume you can sell the vessel at that price, whereas the 3rd scenario is IS a sure thing that we can execute immediately. Additionally, as you can utilize the tax deduction over 5 years, if you're tax obligations over the five years exceed $120,000 To let's say $150,000 and we can get the marine surveyor to appraise her for $450,000, then your potential cash in pocket savings is $148,500. Granted that's at the very top end, but puts you $75,000 ahead of the first scenario.