Free US Calls: 1-888-433-4735
International: 305-545-5588
DISCLAIMER
Diesel Pro Power is not a certified public accounting firm. The content in this article is intended for general informational purposes only and is not tax or legal advice. Before making any decisions based on the tax provisions described here, consult a licensed tax professional regarding your specific situation.
Table of Contents
-
Executive Summary
-
What Is the One Big Beautiful Bill (OBBBA)?
-
Bonus Depreciation Restored—Primary Source Authority
-
Section 179 in 2025—Limits and Mechanics
-
How Vessels Qualify for Immediate Write-Offs
-
Ownership Structures—Who Gets the Benefit
-
2025 vs. Prior Years—Phase-Down Reversal
-
Real-World Examples—Charter Owners in Action
-
Deducting Engine Parts and Maintenance
-
IRS Compliance Guidelines & Audit Triggers
-
Depreciation Recapture and Forward Planning
-
Final Takeaways & Diesel Pro Power Support
-
Final Disclaimer Reminder
1. Executive Summary
In 2025, charter boat owners using Detroit Diesel, Cummins, or Caterpillar marine engines can take advantage of powerful tax incentives—especially under the One Big Beautiful Bill Act (OBBBA). The legislation restores 100% bonus depreciation for qualifying business-use vessels acquired and placed in service after January 20, 2025. This allows charter operators to deduct the full cost of their vessel in the first year of use.
IRS Section 179 expensing also expanded, and parts, upgrades, and engine repairs are deductible as operational expenses when tied to a legitimate charter business.
These changes can offer major cash flow advantages—but only if charter owners meet the IRS’s operational and documentation requirements. We explain everything below, including:
-
Which boats qualify
-
Which buyers can deduct
-
Real-world examples
-
Tax comparisons to 2023–2024
-
Red flags and compliance tips
2. What Is the One Big Beautiful Bill (OBBBA)?
The One Big Beautiful Bill Act (H.R. 1, 119th Congress) was signed into law on July 4, 2025. Among many provisions, the bill reinstated and made permanent 100% bonus depreciation for qualifying property placed in service on or after January 20, 2025. This is a major reversal of the bonus depreciation phase-down that began in 2023.
-
Primary source text of the bill: Congress.gov – H.R. 1 Text
-
Tax firm overview: Stinson LLP
-
Depreciation summary: National Law Review
-
Advisory update: KBKG Tax Credits
3. Bonus Depreciation Restored—Primary Source Authority
Prior to OBBBA, bonus depreciation was being phased out: 80% in 2023, 60% in 2024, and only 40% in early 2025. Under OBBBA:
-
100% bonus depreciation is now permanent for qualifying assets.
-
Applies to new or used property acquired and placed in service after January 20, 2025.
-
Includes commercial vessels with a recovery period of 20 years or less under MACRS rules.
This means that if you buy a charter vessel and begin operating it after Jan. 20, 2025, you may deduct the entire purchase price in the first year using bonus depreciation.
Citations:
-
Full legislative language: Congress.gov H.R.1
-
Policy summary: RSM Tax Insights
-
Accounting interpretation: Warren Averett
-
Compliance FAQ: Horizon Wealth Tax
4. Section 179 in 2025—Limits and Mechanics
In addition to bonus depreciation, Section 179 expensing rules were expanded:
-
Deduction limit raised to $2.5 million
-
Phase-out starts at $4 million
-
Applies to tangible property, including marine vessels used in business
-
Unlike bonus depreciation, Section 179 is limited to taxable income
Section 179 can be a useful alternative or supplement when bonus depreciation is not optimal—such as when you want to avoid creating a net operating loss.
Citations:
5. How Vessels Qualify for Immediate Write-Offs
Not every vessel qualifies for bonus depreciation or Section 179. The IRS and the OBBBA define qualifying property as tangible personal property with a MACRS recovery period of 20 years or less, and used in an active trade or business.
For charter boat owners, this typically includes:
-
Fishing charters
-
Scuba and dive boats
-
Sightseeing vessels and yachts used in commercial charters
Key Qualification Rules:
-
The vessel must be used more than 50% for business (i.e., income-generating charters).
-
Personal use limits the deduction, or disqualifies bonus depreciation entirely.
-
The vessel must be purchased (not leased or gifted).
-
It must be placed in service in the tax year claimed (i.e., actually operating charters).
IRS source:
6. Ownership Structures—Who Gets the Benefit
Different business entities claim bonus depreciation and Section 179 differently. Here’s how it breaks down:
A. Sole Proprietors and Individuals
-
Can claim deductions directly on Schedule C or Form 4562.
-
Must materially participate in the business.
-
Section 179 limited to net income; bonus depreciation can create losses.
B. LLCs and Partnerships
-
Deduction passes through to members or partners based on ownership percentage.
-
Bonus depreciation is allocated on K-1 forms.
C. S-Corporations and C-Corporations
-
May fully deduct qualifying vessels via bonus depreciation.
-
Section 179 deductions reduce taxable income, but not below zero (unless carryover applies).
Source:
7. 2025 vs. Prior Years—Phase-Down Reversal
Here’s a quick look at how depreciation rules have changed since 2023:
| Tax Year | Bonus Depreciation | Section 179 Limit |
|---|---|---|
| 2023 | 80% | $1.16 million approx. |
| 2024 | 60% | $1.22 million approx. |
| Jan 1–19, 2025 | 40% | $1.25 million approx. |
| Jan 20+, 2025+ | 100% (OBBBA) | $2.5 million |
Citations:
8. Real-World Examples for Charter Boat Owners
Let’s take a look at how the 2025 rules might apply in practical scenarios for Diesel Pro Power customers:
Example 1: Fishing Charter Upgrade
Captain Maria owns a fishing charter in Florida and operates a twin-engine sportfishing boat with Detroit Diesel 8V71s. In 2025, she buys a new 36-foot vessel for $350,000 and begins operating charters in March.
-
Because she places it in service after Jan 20, 2025, she qualifies for 100% bonus depreciation.
-
She deducts $350,000 in full on her 2025 tax return, saving up to $115,500 in federal tax if in a 33% bracket.
-
She also deducts her engine repower parts purchased from Diesel Pro Power as operational expenses.
Example 2: Dive Boat Owner Operating as an LLC
DeepSea Dive Co. is a California-based LLC running three dive boats using Caterpillar 3208 engines. In 2025, the company buys a used 40-foot vessel for $500,000.
-
Because it’s used, the vessel still qualifies for bonus depreciation.
-
DeepSea Dive allocates the $500,000 deduction across its two partners (60/40 split).
-
Engine upgrades like raw water pumps or turbochargers are separately expensed, not depreciated.
Example 3: Yacht Owner Renting on Charter Platforms
Jake buys a high-end Cummins-powered yacht and lists it for luxury charters via a platform like Boatsetter. He uses it for personal trips ~25% of the time.
-
He fails the 50%+ business use test.
-
He can’t claim bonus depreciation, but may depreciate the vessel over time under MACRS rules.
-
Engine repairs and parts may still be deductible if properly allocated to the charter use.
IRS Guidance:
-
IRS Passive Activity Rules – Pub 925
9. Deducting Engine Parts and Maintenance
While bonus depreciation applies to the purchase of a vessel, the ongoing maintenance and repair costs—including engine parts—are typically treated as regular business expenses under IRC §162.
What Marine Engine Parts Are Deductible?
If the vessel is used in a charter business, you may deduct the cost of:
-
Cylinder heads for Cummins, Detroit Diesel, or Caterpillar engines
-
Raw water pumps for marine cooling systems
-
Turbochargers, injectors, gaskets, and seals
-
Transmission repairs for marine gears like Twin Disc or Allison
-
Oil, filters, impellers, and other consumables
These are considered ordinary and necessary expenses for the business and are generally fully deductible in the year incurred, provided they are not part of a capital improvement (i.e., increasing the boat’s market value or extending its life significantly).
IRS guidance:
Repairs vs. Capital Improvements
-
Replacing a worn impeller = repair (deductible)
-
Rebuilding the entire engine = capital improvement (may require depreciation unless using bonus or 179)
Caution: Improperly categorizing capital improvements as “repairs” is a red flag for audit. Work with a tax professional to apply the IRS “BAR” test: Betterment, Adaptation, Restoration.
IRS repair/capitalization rules:
10. IRS Compliance Guidelines & Audit Triggers
Keep Detailed Records
The IRS scrutinizes large deductions like vessel purchases and engine overhauls. Be prepared to document:
-
Proof of purchase, closing documents, and financing terms
-
Charter income logs showing regular business activity
-
Maintenance invoices for engine parts and labor
-
Photos and logs proving the vessel was placed in service
-
Time logs showing separation of business vs. personal use
If you’re using parts from Diesel Pro Power to maintain a charter vessel, keep the invoice with your tax files—especially if it exceeds $2,500.
Common Red Flags for Charter Vessel Owners
-
Mixed-use boats (personal + business) without time logs
-
Claiming 100% business use for luxury yachts
-
Not placing the boat in service (e.g., purchased in December but no charters started)
-
Depreciating leased vessels you do not legally own
-
Not filing Form 4562 when claiming bonus depreciation or Section 179
IRS source:
11. Depreciation Recapture and Forward Planning
What Happens If You Sell the Vessel?
If you sell a vessel after claiming bonus depreciation, the IRS requires you to recapture the depreciation as ordinary income to the extent of gain.
For example:
-
You buy a vessel for $500,000 and deduct it entirely under bonus depreciation.
-
You sell it three years later for $400,000.
-
The $400,000 is recaptured as ordinary income (not capital gain).
This doesn’t mean the deduction was a mistake—it’s a timing advantage that boosts early-year cash flow.
IRS Reference:
Plan with Your Tax Advisor
-
If you expect future losses or capital gains, discuss spreading Section 179 or opting out of bonus depreciation.
-
Consider the long-term impact on self-employment tax, QBI deductions, and cash flow.
12. Final Takeaways & Diesel Pro Power Support
Charter boat owners operating commercial vessels powered by Detroit Diesel, Caterpillar, or Cummins engines have a rare opportunity in 2025 to take full advantage of new tax law.
Under the One Big Beautiful Bill Act:
-
Bonus depreciation is back—100% first-year expensing is now permanent.
-
Section 179 expensing limits have increased.
-
Marine engine parts and repair expenses remain fully deductible for business vessels.
-
Vessel purchases after Jan 20, 2025 may qualify for immediate write-offs.
Whether you’re adding a new charter boat, upgrading your transmission, or rebuilding your 6CTA or 8V92 engine, the 2025 tax rules can significantly reduce your effective costs.
At Diesel Pro Power, we provide reliable, high-performance marine engine parts for serious charter operators who need parts fast and done right the first time. Our team has supported over 40,000 customers worldwide, helping you keep your boats on the water—and now, helping you better understand the financial landscape you operate in.
13. Final Disclaimer Reminder
Once again, Diesel Pro Power is not a CPA or tax advisory firm. This article is provided for educational purposes only. We recommend working closely with a qualified CPA or maritime tax professional to apply these tax rules to your specific business situation.
-
