Why a $90,000 Rental Pontoon Deducts $67,500 in Year One

Most of it can. Boats sit outside the luxury auto limits, so bonus depreciation has no dollar ceiling here. Family use shrinks the deduction. A boat is listed property, so the deduction follows the rental share of its use, and once personal use passes half, the bonus is gone. A cabin or a hired captain can then push what is left into a later year.

Our position for 2026: run it as a business, deduct the rental share of the price in year one, and keep family miles well under half.

1 A boat has no luxury auto cap

The depreciation caps in section 280F apply to a "passenger automobile," which the code defines as a 4-wheeled vehicle made mainly for public streets and roads. A boat is not one, so there is no first-year dollar limit. Boats acquired after January 19, 2025 get 100% bonus depreciation, which covers property with a recovery period of 20 years or less. A boat bought under a written binding contract signed on or before that date counts as acquired on the contract date, and if placed in service in 2026 it gets the old 20% rate.

The recovery period comes from asset class 00.28 in IRS Publication 946: "Vessels, Barges, Tugs, and Similar Water Transportation Equipment," 10 years under the regular system and 18 under the alternative depreciation system. The recreation class does not list boats, so we put pontoons, center consoles and jet skis in 00.28.

2 The rental has to be a business, and pass a use test

Section 280F also sets a use test for listed property, and that list covers "any other property used as a means of transportation." The regulation names boats in that clause.

The test counts only qualified business use, meaning use in a trade or business. If renting the boat is an investment rather than a business, say a boat placed with one charter company while you stay out of it, qualified business use is zero, so the boat still gets 18-year straight-line depreciation but no bonus.

A business must still clear 50% every year. Miss it in the first year and bonus is off. Pass in year one and miss later, and part of the earlier depreciation comes back as income. Two details set the percentage:

• Use is measured in miles. The regulations allocate the use of any means of transportation by mileage, the same as a car, and count actual use, not days the boat sat at the dock. The records regulation allows another measure, such as engine hours, only with IRS approval.
• Rentals to relatives are excluded. Renting to a parent, child, sibling or spouse is not qualified business use, even at the full platform price.

Section 274(d) adds a records rule for listed property. You need the amount of each expense, the miles of each business use and of total use, the date, and the business purpose. Log GPS or chartplotter miles for every trip, rental and family alike.

3 Customer rentals pass section 274, client outings do not

Section 274(a)(1)(B) denies deductions for an entertainment facility, and the regulation's examples start with yachts. A boat rented to the public gets out through section 274(e)(8), which exempts goods, services and the use of facilities "sold by the taxpayer in a bona fide transaction for an adequate and full consideration." The regulation's own illustration is "the cost of operating a pleasure cruise ship as a business."

It covers paid trips only. A Saturday out with customers of your main business is nondeductible entertainment, and the listed property regulation then keeps that outing out of business use for the 50% test.

4 A cabin can make the boat a second home

Section 280A, the vacation home rule, defines a dwelling unit to include "a house, apartment, condominium, mobile home, boat, or similar property." IRS Publication 527 adds that a dwelling unit "has basic living accommodations, such as sleeping space, a toilet, and cooking facilities." A basic pontoon, a bowrider or a jet ski has none of those, so it is likely not a dwelling unit and section 280A does not reach it. A cabin cruiser with a V-berth, a head and a galley has all three.

On a cabin boat, personal use is counted in days. A day is personal if you or a family member uses the boat for any part of it, if anyone uses it for less than a fair rental, or if it goes to someone under a swap that gets you another boat or home. Past the greater of 14 days or 10% of the days rented at a fair rental, the boat is treated as your residence and its deductions are capped at its rental income. The excess carries forward, but it cannot create a loss that year. The 10% figure only allows a 15th personal day once the boat rents 150 days or more.

5 Bareboat or captained, the seven-day rule applies

Our example assumes six-hour trips, and when the average customer use is seven days or less, the activity is not a "rental activity" for the passive loss rules. That holds whether the renter drives (a bareboat rental) or you supply a captain. The boat is treated as a business, and its loss can offset wages only when you materially participate.

A captain changes the hours. For one boat, the common route is to log over 100 hours and no fewer than anyone else. A hired captain running 72 six-hour trips logs 432 hours of their own, so you would need at least that many, or more than 500. On a bareboat rental you are usually not aboard, so trip time is not your time. A loss that ends up passive waits for passive income or for a fully taxable sale of the boat to an unrelated buyer.

Captained charters do not clearly escape the use test. The code lifts the transportation clause when "substantially all" of a boat's use is carrying unrelated people for hire, but a pleasure boat can still be listed property as recreation property, and family weekends defeat "substantially all" anyway. A bareboat rental is a lease, not a transport service, so that carve-out never reaches it.

Section 280F also does not apply to property held for leasing by someone "regularly engaged in the business of leasing" it. A marina with a dock of boats can argue it; for one boat the argument is weak, since the regulation says a person leasing only one automobile is not regularly engaged. Losses above $256,000 single or $512,000 joint in 2026 (Rev. Proc. 2025-32) also hit the excess business loss limit, which one pontoon will not approach.

6 A $90,000 pontoon in its first season

Take a $90,000 tritoon pontoon with no cabin, bought and listed on May 1, 2026, on a lake where the season ends September 30. It goes out on 72 booked day trips, and the family uses it on 24 days. The trip log shows 1,500 rental miles out of 2,000, so business use is 75%. Rental income after platform fees is $36,000. Running costs are $16,000, and 75% of that is $12,000. The owner is in the 37% bracket and logs the hours to materially participate.

That $16,095 assumes the owner materially participates, the boat has no cabin for section 280A to cap, and the whole loss offsets income taxed at 37%. The other 25% of the price, $22,500, is personal and never deductible. Figure 2 adds a cabin or a captain.

7 When rental use drops, or the boat is sold

Say the family takes the open pontoon out more in 2027, and the log shows 900 rental miles out of 2,000, or 45%. Section 280F(b)(2) compares the depreciation allowable for 2026 with what an 18-year straight-line schedule and a half-year convention would have allowed: $67,500 divided by 18, halved, is $1,875. The difference is added to income in 2027, the first year business use falls to 50% or less, at that year's rates.

If an examiner placed the boat in the recreation class instead of 00.28, a different alternative schedule would apply and the add-back would change.

A boat is section 1245 property, so gain up to the depreciation taken is taxed at ordinary rates. If the open pontoon stays at 75% rental use and sells after three seasons for $60,000, the business share of the price is $45,000 against a business basis of zero, so $45,000 is ordinary income. Net, the owner deducted $22,500, which is 75% of the $30,000 the boat lost in value. The $7,500 loss on the personal share is not deductible. On a cabin boat carrying a disallowed amount forward, the basis and recapture math gets more involved.

8 A boat that loses money before depreciation draws the hobby question

Section 183 limits deductions for activities not engaged in for profit, and one of the nine factors in its regulation is "elements of personal pleasure or recreation." The code presumes a profit motive when an activity shows a profit in 3 or more of 5 consecutive years.

In the open-pontoon example only 2026 shows a loss, and each later season shows a $24,000 profit if bookings hold, so the boat to worry about is one that loses money before any depreciation. Those profitable years from renting out personal property as a business generally carry self-employment tax as well as income tax.

9 What to do before the season

• Have it ready to rent by December 31. Depreciation starts when the boat is ready and available for rental. A boat bought in November, rigged and listed for spring bookings, has a fair argument for this year, the same way the regulation treats farm equipment bought after harvest.
• Log every outing from the first day. Date, GPS or chartplotter miles, and whether it was a booking, a family trip or a client outing.
• Keep an hours log. Cleaning, fueling, launching, guest messages, repairs and any trips you captain.
• Cap family use. Under half the miles for every boat. On a cabin boat, 14 days, unless it rents 150 days or more.
• Keep the money separate. A dedicated account and a booking calendar are what we would want ready if the profit question comes up.

Before you sign for a boat you plan to rent next season, have our tax planning team run the first-year deduction on your own numbers.

General information for owner-operators, not tax advice for your situation. Thresholds change and state treatment varies; confirm current requirements for your own facts before acting.