Understanding Boat Depreciation
We all know that a great amount of depreciation occurs the moment you back your new boat out of the slip, but do you really know what your boat is costing you each year in depreciation? In this post we’ll explore both the up front and underlying factors that cause deprecation. You may soon realize that if you are not using your boat much, selling it may be the best course of action.
Types of Depreciation
We can break down depreciation by observing how it is calculated for accounting purposes.
Generally Accepted Accounting Practices
There are three ways a CPA can depreciate a boat on the books:
- Sum of Year’s Digits. This is computed by finding the cost of the boat, then estimating the useful life of the boat and how much it is worth at the end of that useful life. A formula is then used to calculate the annual depreciation.
- Straight Line Depreciation. This type of deprecation calculation is arrived at by starting with the cost of the boat, then estimating the useful life (in years) as well as what it would be worth at the end of its useful life when you try to sell it.
- Declining Balance Depreciation. For declining balance depreciation, enter the cost of the boat, then enter useful life and figure a rate that you’d be comfortable depreciating the boat at per annum.
Useful Life vs. Using It
There is something to be said about useful life of the boat vs. using the boat during my life. If you are reading this article and your boat is stored and you haven’t used it this past summer, think hard about if a different type of boat may be better suited for you and your families needs or if simply selling now may be the best option.
One litmus test to use is this: Are there any other areas where having the money in your pocket, instead of sitting in storage, could be used? If the answer is yes, it may be time to consider brokering or selling your boat outright.
Other Factors to Consider
If you haven’t used your boat in a while, then it may be time to consider other associated costs and why this article may serve as a wake-up call to possibly sell your boat now.
If your boat is in storage right now, it will remain there until at least late spring – if you use it at all this year. You can avoid another 4-12 months of storage fees right off the top.
Another year older
If you wait until spring, it will be another year older on the books which means more depreciation. You can roughly see “10% depreciation in the first year and ~7% for each year after.
Tally up the costs and see what these are running you. Do you really want to renew them for another year of non-use?
Fuel and Ethanol Related Problems
Nowadays storing anything for over six months causes major headaches with respect to engines and motors. With ethanol additive being put in our fuel at just about every known filling station, this presents major issues for storage of anything with a motor. Ethanol is known to gum up fuel systems, damage fuel tanks and create phase separation caused by moisture. Finally, you may already realize that alcohol absorbs water. Water in your fuel system will eventually lead to corrosion. Additives, aside from their own claims, do not work as well as advertised. The bottom line here is that if your boat either stored or not being used, you may very well start seeing the effects of this “gasohol” fuel.
If after weighing the pros and cons, you decide that keeping your depreciating boat isn’t making financial sense, act now. You can put your boat up for sale yourself or connect with an experienced brokerage like Yachts360 who will guide you through the process. If you want to sell your boat and sell it fast, our team is ready to assist. Just give us a call!