A qualified withdrawal from a CCF account is one that is approved by NMFS for either acquiring, building, rebuilding qualified fishing vessels, or making principal payments on the mortgage of a qualified fishing vessel.
When you make a qualified withdrawal, the amount you withdraw is treated as being made in the following order from your accounts
- Capital account
- Capital gain account, then
- The ordinary income account
You do not need to report a qualified withdrawal from your CCF account on your income tax return.
You must reduce the depreciable basis of fishing vessels you acquire, build, or rebuild for the costs paid for with funds withdrawn from the CCF (either the capital gain account or the ordinary income account).
General requirement: To acquire, construct, or reconstruct a new or used vessel or skiff, including but not limited to payments in direct acquisition or payments for a lease in excess of 5 years.
Some examples of qualifying withdrawals:
- If you are self-constructing your vessel, all capital costs, including travel, meals (deductible portion), and lodging are considered a capital expense if your project is away from your tax home and these expenses are incurred in connection with the inspection of vessel construction or reconstruction. Wages and other expenses deemed attributable to construction or reconstruction activities are also eligible.
- The overhaul of vessel machinery, including but not limited to rebuilding engines and generator sets, hydraulics and steering systems, if considered an integral part of the vessel.
- Upgrading or acquiring equipment, including but not limited to booms, blocks, reels and drums, if considered an integral part of the vessel.
- The upgrade of the vessel hull, including but not limited to reconstructing or expanding top house and lengthening the vessel.
- Upgrading or acquiring vessel electronics.
- Installation of safety equipment, including but not limited to life rafts, alarms, electronic navigation, communication equipment, electronic emergency beacon (EPIRP), fire control equipment and special non-skid coatings to vessel surface.
- Mortgage payments on a vessel mortgage (principle portion only).
- A qualified withdrawal also includes the earnings on investment (investment income). However, the withdrawal shall be considered as taxable, unless specifically excludable.