Marina Operations and How to Take Advantage of Available Tax Cuts

The new budget reconciliation law, or “One Big Beautiful Bill Act (OBBBA),” prevents an over $4 trillion tax hike from occurring at the end of 2025 by permanently extending many of the temporary tax cuts of the 2017 Tax Cuts and Jobs Act (TCJA).

Of interest to many marina and boatyard owners and operators, however, are the many business-related tax breaks, such as the deductible profits of pass-through businesses.

Pass-Through Businesses
Under the OBBBA, the favorable tax treatment for the income of pass-through businesses, such as sole proprietorships, partnerships and S corporations, is now permanently in effect. The OBBBA makes the deduction for marinas and boatyards operating as pass-through entities permanent, allowing a deduction of up to 20% of their qualified business income passed to owners and operators.

Depreciation Write-Offs
One of the key elements of the 2017 TCJA was a 100% bonus depreciation write-off that allowed businesses to immediately deduct the full cost of business equipment and some assets. Unfortunately, that 100% deduction was reduced, year-after-year, sinking to only 60% in 2024.

Today, bonus depreciation is back. In addition, the full, 100% deduction will apply through 2029 for property acquired after January 19, 2025.
In addition to bonus depreciation, OBBA doubled the current Section 179 first year expensing deduction from $1.25 million to $2.5 million and increased the asset acquisition limit from the current $3.13 million to $4 million. In other words, the full deduction would be phased out, should the marina or boatyard operation’s equipment or other asset purchases reach the $4 million ceiling. The increases will take effect for 2025.

Interest Expense Caps
The tax rules placed a limit on the amount of interest paid by a business that could be claimed as a tax deduction to 30% of its adjusted gross income.

Fortunately, “small” businesses — defined as businesses whose average annual gross receipts for a three-year period do not exceed $31 million (indexed for inflation) — were exempt and could continue deducting the full amount of their business interest.

Since 2022, the limitation has been calculated after allowing deductions for depreciation, amortization and depletion. The OBBBA will restore the add-backs for depreciation, amortization and depletion deductions. The reduced adjusted taxable income (ATI), the base upon which the limit is applied, effectively reduces the annual business interest expense deductions for many taxpayers.

Too Much Loss
A little-known, and often overlooked, provision in the tax law places a limit on an individual taxpayer’s ability to offet business-related losses against nonbusiness income. Under the rules, business losses may offset business income, but any net business loss can, indexed for inflation, only offset $313,000 of nonbusiness income ($626,000 for joint filers).

While originally scheduled to expire in 2028, the OBBBA has permanntly extended the business losses rule. It also reset the inflation adjustment to the amount of nonbusiness income that can be offset to the original $250,000 ($300,000 for joint filers) in 2026, with inflation adjustments beginning in subsequent years.

Losses that aren’t allowed in the current year can be carried forward to the following year as net operating losses (NOLs).

Employee Overtime
Unless exempt, employees covered by the Fair Labor Standards Act (FLSA) must receive overtime pay for hours worked over 40 in a workweek at a rate not less than time and one-half their regular rates of pay. Individuals who are properly classified as executive, administrative or professional employees are considered “exempt employees” and aren’t required to be paid for overtime.

Now, thanks to the OBBBA, workers making less than $150,000 can deduct overtime pay of as much as $12,500 for single filers and $25,000 for those filing jointly. Unfortunately, this deduction begins to phase out for single filers earning $150,000 or more and for joint filers earning $300,000 or more and will expire in 2029.

At a marina or boatyard, the employer should remember that overtime is still considered to be “wages” for FICA tax purposes, meaning the wages are still subject to Social Security and Medicare tax. What’s more, workers can only deduct overtime that is reported on information returns, such as Form W-2.

For 2025, businesses may use a transition rule that allows them to approximate tip and overtime amounts using a “reasonable method.” Starting in 2026, employers must report qualified overtime separately on Forms W-2 and Form 1099.

While there will likely be updated IRS withholding tables and changes to Forms W-2, 109 and W-4, there is uncertainty about how employers can distinguish “qualified” vs “general” overtime, given the varying state labor laws.

Energy Deductions Lacking Longevity
Several clean energy tax credits established under previous legislation have been phased out or terminated by the OBBBA. The owners and operators of marina or boatyard businesses planning on “going green” will face new adjustments in many energy-related tax provisions.

Tax credits for wind and solar projects will phase out much sooner. To qualify, these projects must be completed by the end of 2027. Other properties that fall under the heading of green energy-producing assets, recycling and storage will no longer be considered five-year properties for depreciation purposes.

Now, these energy-related assets will be subject to depreciation using the general class lifetime rules. While any property placed in service prior to December 31, 2024, can continue using five-year depreciation, others will be required to depreciate assets and properties over longer periods, resulting in smaller depreciation expenses in earlier years.

Tax credits will continue for wind and solar projects that either start construction by June 2026 or that go online by December 2027. Those EV and refueling tax credits that encouraged so many businesses to go green have been terminated.

Qualified Opportunity Zones
Many boatyards and marinas, new and existing, have benefited from doing business in a Qualified Opportunity Zone (QOZ). A QOZ is an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment.

The QOZ program provides for several tax benefits, including deferral of capital gains, step-up in basis and no tax on appreciation. The OBBBA made the Qualified Opportunity Zone program permanent and included changes such as new rural investment benefits, a rolling five-year deferral for new investments, a rolling 10-year designation cycle for maps and stricter compliance rules.

A QOZ business must be a corporation or partnership (an eligible entity) organized under the law of the United States, one of the 50 states, a government of a federally recognized tribe (Indian tribal government), the District of Columbia or a U.S. territory.

The OBBBA also created a new category of funding specifically for investment in rural areas. The Qualified Rural Opportunity Fund (QROF) provides a 30% basis step-up for investments held at least five years. Gains deferred will also be recognized on the fifth anniversary of the investment date.

A Qualified Opportunity Zone Business (QOZB), in which the QROF invests, must be comprised entirely of a rural area. A “rural area” is any area other than a city or town with a population greater than 50,000 inhabitants and any urbanized area adjacent to a city or town with a population in excess of 50,000. Additionally, the OBBBA reduced the substantial improvement requirement for rural OZs from 100% to 50%.

The Bottom Line
The OBBBA makes significant changes to business taxes, extending, modifying and, in many cases, making tax provisions initially enacted as part of the TCJA permanent. There is an increased dollar threshold for Form 1099 reporting. What was previously a requirement for reporting amounts paid for services that exceeded $600, the OBBBA increases that threshold to $2,000 for payments made in 2026.

Transactions between partners and their partnerships must continue as arm’s length transactions with a new loophole. The addition of a technical clarification, a simple “except as provided by the Treasury secretary,” will expand those rules and make them apply, unless existing guidance provides an exception.

The TCJA created a tax credit for compensating employees while they are on family or medical leave as long as the business had a qualified plan for those payments. The OBBBA permanently extended this credit as well as substantially expanding it.

Under the new rules, the charitable donations of incorporated businesses will, beginning in 2026, have a new 1% floor, with only contribution amounts above that amount deductible. The 10% ceiling for total annual contributions remains. Fortunately, contributions exceeding the 10% limit can be carried forward for up to five years.

On a more personal note, the OBBBA also permanently increased the estate, gift and generation skipping transfer tax (GSTT) exemption to $15 million. This change will allow greater amounts to be passed as gifts or inheritances beginning in 2026, when the new exemption kicks in.

Other changes, including new deductions and technical modifications, will require the owners and managers of many marina and boatyard businesses to adjust their tax strategies. In addition to monitoring further developments, seeking professional assistance can help both with planning and reaping the potential tax savings.

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