Capital Construction Fund: A Fisherman’s Guide to Building for the Future

If you’re a commercial fisherman planning to build, buy, lease or rebuild a vessel, the Capital Construction Fund (CCF) can be one of the most powerful tax planning tools available to you. The CCF lets you set aside income today, defer federal income tax and use that money later to invest in your fishing business.

Let’s discuss the details of this program!

To be eligible for this tax benefit your vessel needs to meet the following criteria:

• Vessels weighing 5 tons or more:
  • Must be built or rebuilt in the U.S.
  • Be documented under the laws of the U.S.
  • Be operated in the foreign or domestic trade of the U.S. or in the fisheries of the U.S.
• Vessels weighing less than 5 tons, but at least 2 net tons:
  • Be built in the U.S.
  • Be owned by a U.S. citizen
  • Have a home port in the U.S.
  • Be operated commercially in the fisheries of the U.S.

If you meet the above criteria, you then must enter into an agreement with the Secretary of Commerce through the National Marine Fisheries Service (NFMS) that establishes the following:

• Agreement vessels: eligible vessels named in the agreement will be the basis for the deferral of income tax.
• Planned use of withdrawals: use of CCF funds to acquire, build or rebuild a vessel.
• CCF depository: where the CCF funds will be held.

You are required to have three types of accounts for the CCF. The capital account, capital gain account and ordinary income account. These accounts all track different things, so it is critical that they are set up and accounted for properly. You can then begin making qualified deposits into the CCF. You can also take qualified withdrawals from these accounts for things such as acquiring, building or rebuilding a qualified vessel, pay down principal on a loan used for a qualified vessel, or purchasing specific types of nets.

The CCF is a complex tax planning tool, don’t try to navigate the waters alone! Contact a Farm Credit East tax specialist today to discuss your situation and options that may be available.

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