Case Study · Lentine v. Commissioner · U.S. Tax Court
When is a yacht placed in service?
Inside a year-end depreciation dispute.
Lou Lentine claimed first-year depreciation benefits after acquiring a replacement charter yacht in December 2016. The IRS says the vessel was not placed in service until its first paying charter in 2017. The pending case shows why delivery, readiness and first use are not always the same date.
Editorial note: Statements attributed to the parties describe their reported positions and have not been adopted as findings by the Court. No published merits opinion or final decision was identified as of July 2026. This case study is educational and does not constitute legal or tax advice.
Lentine v. Commissioner puts a deceptively simple question under the microscope: when was a newly acquired charter yacht ready and available for its assigned business function? The answer may determine the tax year in which depreciation begins.
- CaseLou Lentine v. Commissioner of Internal Revenue
- DocketU.S. Tax Court, No. 12443-21
- Core issueWhether the yacht was placed in service in December 2016 or in 2017
- StatusPending; this case study does not report a final holding
The transaction and disputed timeline
Lou Lentine operated a Florida yacht-charter business. According to the case account, he traded an older 80-foot Horizon yacht toward a newer FD87 in December 2016, with a reported trade-in value of approximately $2.65 million. The transaction closed on December 15.
Lentine’s position is that the replacement yacht was delivered, operational and available for charter by year-end. Crew reportedly cleaned the vessel, tested its systems and prepared it between December 16 and 21. The owner and his family then used the vessel during the holidays, while the first paying charter occurred in early 2017.
The 2016 return claimed first-year depreciation benefits, described in the case materials as bonus depreciation and section 179 expensing. The IRS disallowed the 2016 treatment, taking the position that the yacht was not placed in service until 2017. Lentine petitioned the Tax Court in 2021.
The question before the Court
The central issue is not simply when title transferred or when a customer first paid to use the vessel. The federal depreciation regulations generally focus on when property is in a condition of readiness and availability for its specifically assigned function.
“Property is first placed in service when first placed in a condition or state of readiness and availability for a specifically assigned function.”
Taxpayer’s position
Delivery, completed preparation, systems testing, crew readiness and availability before December 31 support a 2016 placed-in-service date—even though the first paid charter came later.
IRS position
The absence of a 2016 paying charter and any remaining preparation may indicate that the yacht did not become ready for its assigned charter function until 2017.
Readiness versus first use
“Placed in service” does not invariably mean “first used by a customer.” An asset may be ready and available before it generates revenue. But purchase, physical delivery or an owner’s assertion of availability does not by itself establish readiness. The vessel’s actual condition, required outfitting, crew status, approvals, marketing and availability all contribute to the factual analysis.
Personal use complicates the evidence
The reported holiday trip does not automatically answer the placed-in-service question. It may show that the yacht was operational, but it may also complicate the claim that the vessel had already been committed and available for charter. Separate business-use limitations and allocation rules may also apply. Clear logs distinguishing owner use, repositioning, testing and charter availability are therefore important.
Profit motive is not the identified dispute
Based on the supplied case account, the IRS challenge in Lentine concerns depreciation timing rather than whether the charter activity was engaged in for profit under section 183. That distinguishes the case from yacht disputes centered on the hobby-loss rules. It is important not to import an issue from another case into this one without support in the pleadings or record.
No holding—yet
The case was heard on March 25, 2025, but no final merits opinion is identified in the materials used for this case study. The reported procedural history indicates that the placed-in-service date requires development of the factual record rather than resolution as a purely legal question.
Accordingly, it would be inaccurate to say that Lentine won, that the IRS won, or that the Court established a yacht-specific rule. Until the Court enters a decision or publishes an opinion, the dispute remains an illustration of the evidence that can matter—not authority for a particular tax result.
Evidence that can establish readiness
A year-end invoice proves a transaction occurred. It does not necessarily prove that the asset was ready for its assigned function. Yacht owners and operators should preserve a coordinated record showing what was complete, what remained outstanding and when the vessel was genuinely available.
- Closing and delivery records. Keep purchase agreements, acceptance documents, title records and delivery acknowledgements.
- Captain and crew logs. Record sea trials, system tests, cleaning, provisioning, repositioning and the date the vessel became charter-ready.
- Invoices and work orders. Identify whether post-delivery work was routine preparation or essential outfitting required before charter operations.
- Licenses and insurance. Retain effective dates for charter insurance, registrations, certificates and any operational approvals.
- Marketing and availability. Preserve listings, broker communications, booking calendars and evidence that customers could reserve the yacht.
- Charter and owner-use logs. Distinguish paid charters, test voyages, repositioning and personal trips from the first day of ownership.
- Tax workpapers. Document basis, business-use percentage, depreciation method and the legal support for the selected service date.
Lentine compared with a profit-motive yacht case
| Attribute | Lentine v. Commissioner | Profit-motive yacht dispute |
|---|---|---|
| Primary question | Which tax year did the yacht become ready and available for charter? | Was the activity conducted with an actual objective of making a profit? |
| Core authority | Placed-in-service rules under the section 167 regulations | Section 183 and the facts-and-circumstances factors in its regulations |
| Important evidence | Delivery, outfitting, testing, crew, approvals, listings and availability records | Business plans, expertise, operating changes, time devoted, revenue efforts and financial history |
| Personal use | May complicate readiness and business-use allocation | May weigh against a profit objective depending on all the facts |
| Reported status | Pending; no final merits holding stated here | Must be checked on the relevant case docket |
Practical takeaways for yacht owners
Plan before year-end
A December closing leaves little room to finish essential work. Coordinate delivery, compliance, crew, insurance and charter availability before selecting a tax-year treatment.
Build one evidence file
Make the closing documents, captain’s log, invoices, certificates and booking records tell the same chronological story.
Separate personal activity
Maintain detailed owner-use records and do not assume an operational pleasure cruise proves readiness for the vessel’s assigned business function.
Model both outcomes
Before filing, quantify the consequences of each plausible service date and confirm which depreciation provisions and limitations applied in the relevant year.
Frequently asked questions
Does delivery automatically place a yacht in service?
No. Delivery is relevant, but the analysis focuses on readiness and availability for the yacht’s assigned business function. Essential unfinished work can point to a later date.
Must the first paying charter occur before depreciation begins?
Not necessarily. Actual revenue is evidence, but property may be ready and available before its first customer use. The conclusion depends on the complete factual record.
Does a personal trip prevent a business placed-in-service date?
Not automatically, but it can complicate the timeline and may raise separate business-use allocation or limitation questions. Contemporaneous records are essential.
Did the Tax Court rule for either party?
Not according to the case status used for this article. No final merits holding is presented here, and readers should check the current docket before relying on the status.
Why can one year make such a difference?
Depreciation eligibility, applicable percentages, limitations and the timing of deductions can vary by tax year. The exact result requires analysis of the law in effect for the specific acquisition and service dates.
Document the date before defending it
Acquiring or placing a charter yacht into service near year-end? McGregor Financial Services can help organize the tax timeline and supporting records before the return is filed.
Speak with an AdvisorCase-study disclaimer: This article is educational and does not provide legal or tax advice. It summarizes a pending dispute using the supplied case account; disputed allegations are not judicial findings. Case status and tax law can change. Confirm the current Tax Court docket and consult qualified counsel before relying on this material.