There are many perks of owning a boat, especially in the context of taxes. These deductions can give you relief from the annual costs of maintaining your boat. Find out the potential tax benefits you could enjoy fresh off your boat.
Tax Benefits for Boat Owners
1. Mortgage Interest Deduction
The mortgage interest deduction is not limited to debt securing your traditional single-family home. You could avail of an MID if you’ve taken out a loan securing your boat as a qualified home.
To be a “qualified home”, the boat must be the main home or second home equipped with cooking, sleeping and toilet facilities. In boat terms, that’s a galley, berth, and toilet.
Boats as Second Home
As most boat owners don’t technically live in their boats any given day, qualifying it as a second home is a common practice. A second home can be rented out or not.
If your boat has not been rented out or have no plans to sell it, you don’t need to use it the whole year to be treated a qualified home. If you’ve rented out your boat, it could still be a qualified home subject to you using the home long enough.
A second-home deduction is factored into home acquisition costs that should not exceed $1 million. If you have taken out a home equity line of credit for the boat, it should not be more than $100,000.
2. Sales and Property Taxes
New boat owners who itemize their deductions can opt to deduct state and general local sales tax. By doing so, they can’t deduct their state and local income tax.
The IRS notes that this option is helpful if your state doesn’t collect income taxes or you made a big purchase like a boat for instance before the tax year ends.
Personal property taxes levied by state and local governments can also be written off as deductions for as long as they are (a) ad valorem or according to the value of the boat, (b) assessed annually and (c) imposed on the boat.
3. Business Expense
If you’ve been using your boat for business and not for your personal entertainment or recreation, you can deduct ordinary and necessary expense related to the conduct of your business as a business expense.
In cases where the boat is used partly for business and for recreation, you could claim deductions for expenses incurred in the business-use portion of the boat.
If you are under Alternative Minimum Tax, a taxation scheme for more affluent taxpayers, some itemized deductions such as on personal property taxes may not be applicable to you. Consult with your accountant or tax professional to know which among the above tax benefits you can take advantage relating to your boat ownership.