FINANCECOLUMNFor example, if your business still has debt payments from a mortgage is $1,339,784.62. Since the business has already loan and is about halfway through the amortization period, depreciated most of the original cost under bonus plus it may be time to consult with your accountant and per- MACRS, a sale/leaseback for that amount may offer you form a cost/bene? t analysis of a sale/leaseback transaction. tax bene? ts from the amount of the rent you pay that is no In an operating lease, such as a bareboat charter, your longer available though the mortgage. rent payment is, in most cases, 100 percent deductible. In The sale of the vessel may create a taxable event whether a bareboat charter, the business does not own the equip- or not a business has claimed its legal depreciation. To ment; you rented it for a period of time. The business may calculate your basis, take what you paid for the asset, add-be offered an early buyout option (EBO) to exercise and it ing in any capital repairs or improvements, and then sub-may choose to buy the equipment at that time. If the busi- tract the depreciation. If a business sells it for more than ness chooses not to exercise the EBO, at the termination of the original price, the pro? t will be subject to capital gains the charter it may have the option to purchase, re-charter it tax. The IRS also charges a tax, which varies depending on or return the equipment to the ship owner. what is being sold, on the difference between the depreci-In a loan, a business can deduct depreciation and inter- ated basis and the selling price. (Any gain on the sale is est, but not principal. If you used up most of your depre- taxed as ordinary income to the extent the business previ-ciation, either from aging or accelerated the depreciation ously took depreciation. Any gain above and beyond that, under bonus, the bene? t of ship ownership may decline. is taxed as capital gains).Let’s say that at the end of ? ve years on a $2,000,000 In the end, each individual situation will vary. De-ten-year loan, the principal balance remaining on the ship’s pending on the ? nancial condition of your business, ship ownership may be of diminished tax bene? t to you. One available option is to identify a ? nancing source that ? nds ownership attractive and consider selling your the vessel to them. As the asset will be new to them, the purchasing party will depreciate it and use that depreciation to reduce the amount of rent paid by the business. By having the business rent the vessel back from the purchasing party, they may be able to deduct the rent from your their taxes. Everybody ends up happy.Richard J. Paine, Sr. is the National Finance Manager – Commercial Marine Group for TCF Equipment Finance, Inc. He can be reached at rpaine@tcfef.com. The perspective offered by Mr. Paine is based on his own expertise and not necessarily the view of TCF Equipment Finance. The author is neither an accountant nor a tax advisor. The foregoing information is in no way intended as tax or accounting advice. Make sure to seek your accountant’s advice, as each situation may differ.March 2014MN20 MN MAR14 Layout 18-31.indd 20 MN MAR14 Layout 18-31.indd 20 2/21/2014 3:21:44 PM2/21/2014 3:21:44 PM