Navigating Paradise and Profit: Steve Varrow on the Tax-Advantaged Yacht Investment Renaissance

As recent updates to U.S. tax law have reignited interest in 100% bonus depreciation, a unique investment opportunity has emerged that combines luxury lifestyle with substantial financial benefits. Steve Varrow, founder of Virgin Islands Yacht Broker (VIYB), has positioned himself at the forefront of this evolving market where business owners are increasingly looking beyond traditional assets toward charter-ready catamarans in the Caribbean. With over two decades of experience in yacht brokerage, sailing instruction, and charter management operating from the British Virgin Islands, Varrow has witnessed firsthand the transformation of yacht ownership from pure luxury expense to strategic business investment. His company specializes in helping clients navigate the complex intersection of Section 179 deductions, charter revenue generation, and IRS compliance requirements that make yacht ownership a viable tax strategy for high-net-worth individuals. Operating as the leading yacht brokerage firm in the Virgin Islands with expertise spanning the British Virgin Islands, USVI, St. Martin, and Grenada, VIYB has built its reputation on providing comprehensive guidance that extends far beyond typical boat sales to include introductions to tax professionals, documentation agents, and charter operators, ensuring clients can immediately capitalize on both depreciation benefits and operational revenue streams.

Q) You've noted a significant uptick in inquiries following recent updates to U.S. tax law regarding 100% bonus depreciation for yacht investments. Can you walk us through the specific criteria a yacht must meet to qualify for Section 179 and bonus depreciation benefits, and how do you help clients structure their purchases to ensure full IRS compliance from day one?

Yacht Tax-Leverage Strategy: Section 179 & 100% Bonus Depreciation

Recent updates to U.S. tax law have reignited interest in using yachts as a legitimate business investment vehicle. High-net-worth individuals and companies are increasingly looking at Section 179 and 100 percent bonus depreciation as powerful tools to offset purchase costs in year one. Here is how the criteria work and how I guide clients to full IRS compliance from day one.

The Criteria for Qualification

• Business-use threshold: The yacht must be used for qualified business purposes over fifty percent of the time each year. This includes charters, corporate hospitality, or rental fleet operations. Detailed logs are essential to prove compliance.
• Entity structure: The vessel should be purchased and held through a legitimate business entity such as an LLC, S Corporation, or C Corporation actively engaged in a qualifying business. This establishes that the yacht is an operational asset and not a personal luxury purchase.
• Timing: The yacht must be purchased and placed in service after January 19, 2025, to qualify for full 100 percent bonus depreciation under the recent tax law adjustments.
• Section 179 limits: For 2025, the Section 179 deduction allows up to $1,250,000 in immediate expensing, with the deduction phasing out on a dollar-for-dollar basis once total asset purchases exceed $3,130,000 in that tax year.

Structuring Purchases for Maximum Benefit

1. Confirm and document business use from the outset. Maintain precise trip logs showing dates, duration, and purpose of each voyage. This documentation is critical for compliance.
2. Purchase through the correct business entity. Ensure that the yacht title and all associated contracts are in the name of the entity and align with the entity's stated business operations.
3. Apply Section 179 first, expensing up to $1,250,000 or the maximum allowed by your taxable income. Any unused amount can be carried forward.
4. Apply 100 percent bonus depreciation to the remaining balance of the yacht's purchase price after Section 179 has been used.
5. Keep all relevant records including purchase contracts, proof of placement in service, maintenance records, and usage logs. This creates a strong defense in the event of an audit.

Q) Your guide on tax-advantaged yacht ownership emphasizes the importance of professional charter management and LLC ownership structures. For business owners who are unfamiliar with the yachting industry, what does "active use in a charter business" actually look like in practice, and how do you ensure that vessels like the 67-foot Fountaine Pajot Alegria with charter bookings already in place can meet these active-use requirements?

Active Use in a Charter Business Explained

For business owners new to the yachting industry, the term 'active use in a charter business' means far more than occasional rental. It refers to a consistent and commercially viable operation where the yacht is marketed, booked, and managed as part of a legitimate income-generating charter program. This active use is a key factor in meeting IRS requirements for Section 179 and bonus depreciation benefits.

What Active Use Looks Like in Practice

• The yacht is listed with recognized charter brokerages and visible in professional marketing channels, including yacht charter websites, industry databases, and promotional events.
• The vessel operates under a commercial charter agreement with bookings spread throughout the year, ideally across multiple seasons if geographically possible.
• A licensed and insured captain and crew are engaged when the yacht is on charter, with all legal and safety requirements met for the jurisdiction where it operates.
• Revenue and expense records clearly show the yacht’s commercial activity, with charter income deposited into a dedicated business account tied to the owning LLC.
• The yacht maintains all necessary licenses, permits, and compliance certifications required for charter operations in its area of service.

Ensuring Compliance for a Pre-Booked Alegria 67

When a vessel such as the 67-foot Fountaine Pajot Alegria comes with charter bookings already in place, the transition into a new owner’s business structure is a matter of strategic integration. The process typically involves:

1. Transferring existing charter contracts into the new LLC’s name with updated payment and banking arrangements.
2. Retaining or engaging a professional charter management company to oversee marketing, bookings, maintenance, and crew scheduling.
3. Reviewing the existing booking calendar to ensure it meets the annual business-use threshold of over fifty percent.
4. Continuing marketing efforts to fill any open weeks and maintain consistent revenue flow.
5. Implementing robust record-keeping from day one, including charter agreements, voyage logs, income records, and operational expenses.

Active use in a charter business is about running the yacht as a serious commercial asset, not a personal toy. By combining an LLC ownership structure with professional charter management and strict compliance protocols, owners can maximize both their operational success and their ability to leverage available tax incentives.

Q) Operating from the British Virgin Islands gives you unique insight into the Caribbean charter market. How do jurisdictional considerations between locations like the U.S. Virgin Islands and British Virgin Islands impact both the tax advantages and operational revenue potential for American buyers, and what specific advantages do Caribbean-based charter operations offer over other popular yachting destinations?

Jurisdictional Considerations in the Caribbean Charter Market

Operating from the British Virgin Islands provides a unique vantage point on how jurisdictional differences impact tax planning and operational success for American buyers in the charter yacht market. Both the British Virgin Islands (BVI) and the United States Virgin Islands (USVI) offer strong potential, yet the nuances between the two can shape an owner’s decision-making process.

Jurisdictional Impact on Tax Advantages

• USVI-based yachts can potentially qualify for U.S. tax benefits such as Section 179 and bonus depreciation with greater administrative ease since they operate within a U.S. territory.
• BVI-based yachts can still qualify for these tax incentives, provided the yacht is operated as a legitimate U.S. business asset and meets the active-use and business-use requirements. However, the ownership structure and operational agreements often need additional attention to ensure IRS compliance.
• In the BVI, the absence of corporate income tax, capital gains tax, and sales tax can be advantageous for the yacht-owning entity, especially for reinvestment of charter income into operations or future acquisitions.

Operational Revenue Considerations

• The USVI has become increasingly popular for American charter clients who prefer the simplicity of traveling within a U.S. territory without additional customs and immigration procedures.
• The BVI offers a broader cruising ground with more islands, anchorages, and protected waters, which often results in higher charter satisfaction and repeat bookings.
• BVI-based charters frequently command premium rates due to the exclusivity and reputation of the destination in the luxury charter market.
• Access to both territories allows dual-location itineraries, which can extend the booking season and appeal to a wider client base.

Advantages of Caribbean-Based Charter Operations

• Year-round warm climate and steady trade winds make for an extended charter season compared to seasonal destinations like the Mediterranean.
• Strong global demand for Caribbean yacht charters ensures consistent interest from North America, Europe, and South America.
• Proximity to major air travel hubs, with direct flights into both the BVI and USVI, increases accessibility for charter clients.
• The ability to offer high-value, all-inclusive luxury charter packages tailored to diverse markets including family groups, corporate retreats, and special event charters.

For American buyers, choosing between the USVI and BVI often comes down to balancing tax efficiency with market positioning. A well-structured Caribbean-based charter operation can offer substantial financial and operational advantages, especially when strategically leveraging the strengths of both jurisdictions.

Q) You describe your clients as seeking "tax-advantaged lifestyle investments that also generate income" rather than just buying boats. With your two decades of experience in yacht brokerage and charter management, what realistic income expectations should buyers have from charter operations, and how do you help them balance personal use with the charter requirements needed to maintain tax benefits?

Balancing Income Expectations and Personal Use in Tax-Advantaged Yacht Investments

Buyers who pursue tax-advantaged yacht investments are not simply purchasing a vessel, they are acquiring a lifestyle asset designed to generate income while providing personal enjoyment. With over two decades in yacht brokerage and charter management, I have seen what works in practice and how to balance the competing priorities of personal use, income generation, and IRS compliance.

Realistic Income Expectations

• Most luxury sailing catamarans in the 50 to 70 foot range operating in a well-managed Caribbean charter program generate gross annual revenues between $150,000 and $350,000 depending on size, age, marketing reach, and charter season length.
• After management fees, crew salaries, insurance, maintenance, and operating costs, net income is typically in the range of 8 to 12 percent of the yacht’s market value per year. Well-positioned vessels in high-demand segments can exceed these figures, but such cases require exceptional management and consistent bookings.
• Charter revenue is seasonal, peaking during the winter months in the Caribbean. Owners should anticipate fluctuations in cash flow and plan budgets accordingly.

Balancing Personal Use with Charter Requirements

• To maintain eligibility for Section 179 and bonus depreciation, the yacht must be used for qualified business purposes more than 50 percent of the time each year. This means personal use must be limited and carefully documented.
• I work with clients to map out personal usage calendars that avoid peak charter weeks, ensuring revenue potential is maximized while still allowing for owner enjoyment.
• Personal trips are documented separately, and any mixed-use periods are carefully allocated between business and personal categories to maintain compliance with IRS rules.
• By coordinating with the charter management company, we ensure that the vessel remains market-ready after personal use so there is no interruption in revenue-generating availability.

My Role in Maximizing Value

From the first consultation, I guide clients through realistic revenue projections, expense planning, and tax strategy alignment. I collaborate with CPAs experienced in maritime assets, oversee professional charter management onboarding, and implement compliance systems to track usage and revenue. The result is a yacht ownership experience that delivers both tangible financial returns and the intangible value of time spent on the water.

Q) As the current bonus depreciation rules are set to sunset, you're seeing increased urgency from high-net-worth individuals to capitalize on these benefits. Beyond the immediate tax advantages, what long-term value proposition do you present to clients about yacht ownership as a business investment, and how does VIYB's end-to-end service model—from yacht valuations to closing support—ensure clients can successfully transition from tax strategy to profitable yacht operations?

Long-Term Value Proposition of Yacht Ownership as a Business Investment

With the current bonus depreciation rules approaching their sunset date, urgency among high-net-worth individuals to leverage these incentives has never been higher. However, my approach with clients goes far beyond the immediate tax benefits. Yacht ownership, when structured and managed correctly, can serve as a durable income-producing business asset with residual resale value.

Long-Term Value Proposition

• Income Generation: A well-managed charter yacht in the Caribbean can produce consistent annual revenue, offsetting operating costs and creating a positive cash flow stream for years after the initial purchase.
• Asset Appreciation Potential: While yachts generally depreciate, certain high-quality, well-maintained models in strong demand can retain value better than average and appeal strongly in the resale market.
• Portfolio Diversification: Yachts can be positioned as part of a diversified investment strategy that combines lifestyle utility with business income, reducing reliance on traditional market assets.
• Brand Equity: For corporate owners, a luxury charter yacht can double as a high-impact brand-building platform, hosting clients and partners in an exclusive environment that reinforces prestige and relationships.

How VIYB Ensures a Successful Transition

• Yacht Valuations: We provide market-driven valuations using real-time sales data and regional market analysis to ensure clients purchase at fair market value and with optimal positioning for future resale.
• Sourcing and Negotiation: We identify vessels that align with both the tax strategy and operational revenue goals, negotiating favorable terms on behalf of the client.
• Tax and Compliance Alignment: Working with specialized maritime CPAs, we ensure ownership structures, usage documentation, and charter agreements meet IRS requirements from day one.
• Charter Management Integration: We connect clients with vetted professional charter management companies to maximize bookings, maintain vessel condition, and streamline operations.
• Closing Support: We oversee the transaction from offer acceptance through documentation and registration, ensuring a seamless handover into commercial service.
• Ongoing Advisory: Post-purchase, we remain engaged to monitor market trends, recommend operational adjustments, and guide timing for eventual resale or fleet expansion.

The real power of tax-advantaged yacht ownership lies in combining immediate fiscal incentives with a sustainable business plan that generates revenue, preserves asset value, and enhances personal or corporate branding. Through our end-to-end service model, VIYB bridges the gap between a tax strategy on paper and a thriving charter yacht operation in practice.

Conclusion

Steve Varrow's expertise at Virgin Islands Yacht Broker represents more than traditional yacht brokerage—it embodies a sophisticated understanding of how luxury assets can serve strategic financial purposes when properly structured and managed. His success in helping clients navigate the complex intersection of tax law, charter operations, and Caribbean yacht ownership demonstrates how the marine industry is evolving to meet the needs of savvy business investors. As the current favorable tax environment creates a limited window of opportunity, Varrow's comprehensive approach—combining deep industry knowledge with strategic tax guidance and operational support—positions VIYB as an essential partner for those seeking to transform yacht ownership from expense to investment. With the Caribbean charter market continuing to grow and tax advantages potentially sunsetting, his work illustrates how expertise, local knowledge, and comprehensive service can help clients successfully navigate both the financial and lifestyle benefits of strategic yacht ownership in paradise.

For more information, visit:

Virgin Islands Yacht Broker: https://www.virginislandsyachtbroker.com

Read more about yacht tax incentives: https://www.virginislandsyachtbroker.com/buy-a-yacht-and-write-it-off-100-bonus-depreciation/