Boat as a second home tax deduction??

[NautiDuck]

Someone at work told me that a boat, if properly equipped, is considered a second home by the IRS and qualifies for tax deductions. I assume they meant that the interest on a boat loan is deductable just like home mortgage interest. If this is true it could help me convince the admiral to get a new boat. What's the scoop?

 

[Bob]

Your Right

Thanks to all the politicians and lobbyists who want their big vessels, the interest on the boat loans are tax deductible providing the vessel is classified as a second home or domicile with a berth, galley and head. I guess if you stuck a cedar bucket onboard, a sleeping bag, a Coleman stove and a jug of water you are in luck! If you paid cash and own the boat free and clear I guess their are other alternatives for tax deductions (entertainment use as a business expense, etc), BUT I am not an accountant nor a tax consultant, so my advice is only based on what I have heard from others. Now that I clarified that, perhaps someone who has expert knowlege in this can chime in..Bob

 

[Bob]

you need that deduction

There are 2 requirements that I know of to make it qualify. 1. that it has a head 2. that it has a galley. And yes it would be the interest. I just called my noteholder and they sent me the paperwork. now if I could buy a slip under an equity line it will be a real money maker. wait it is a b.o.a.t. good luck convincing her.

 

[Calif. Ted]

Yes, Boat, motorhome whatever, is generally

good for deduction of interest as a second home. I think qualifications are cooking, sleeping & bathroom "areas" or facilities. That's why you see a lot of small powerboats at the boatshow with a porta-potty, tiny little sink, 1 burner alcohol stove & some kind of "berth".

 

[Peggie Hall HeadMistress]

It's true...

As long as you don't also have a beach house or a motorhome you're already claiming as a second home, that is. The interest on the boat loan is deductable for any boat that's designed to include sleeping, cooking and enclosed toilet facilities (tossing a campstove, a sleeping bag and a portapotty onto a day sailor won't do..the boat has be designed to sleep, cook and weewee aboard). However, that's not much of a reason to increase your debt load, especially with today's low interest rates. 'Cuz "deduct" does NOT mean that you get to subtract the entire amount of the interest from your tax bill...it only means that you get to reduce your net income by the amount of the interest paid. Depending on your tax bracket, the best you can hope for is for the gov't pay 35% of the interest...the other 65%, plus any principle reduction (and don't forget the increased maintenance and insurance costs for a newer larger boat) still comes out of YOUR pocket.

 

[Calif. Ted]

However since you are looking for reasons

to buy here's a great one. For boat loans the more you borrow the better the rates & terms. Many "boat loan" companies have minimums of 25 or 35 thousand & you can sometimes get a 30 year $100,000 dollar loan for the same monthly payment as a 15 year smaller loan because of the lower rate for a larger loan. It's the reverse of most things like motorhomes or real estate.

 

[Peggie Hall HeadMistress]

Best way I know of end up upside down

("Upside down = owe more than you can sell it for) when you want to sell the boat. It's one thng to borrow $100k if you can afford the payments to pay it off in the same 10 years as a $25-35k loan, or a home that will appreciate...but totally nuts to finance a depreciating item for 30 years--especially one that will be worth about half what you paid for it in less than 10 years, while you'll still owe at least 80% of the loan. But hey...you got to deduct all that interest while your principle was only going down about $100/year.

 

[Rich]

Peggie has it right...

Peggie's description sums up the effect pretty well. If you don't already have some other property to take a deduction for, then you can take the deduction on the interest from your boat loan. If you've bought a new boat with a loan, that can be pretty substantial in the first years of the loan--but don't make that a reason to take out too big a loan or for too long. Do all the required math to see how it plays out.One nice thing about this is that it doesn't have to be a mega-loan; I've got a 12-year loan of $17,000 on an older sailboat and will get back a couple of hundred extra dollars a year for those 12 years. It has the effect of lowering the interest rate, which for boat loans is still higher than a home mortgage.

 

[NautiDuck]

Thanks Everyone!

Good information and delievered fast. What a great site! I would never take on debt just because the interest is deductable but it is good to know that it is possible. At a minimum it would mean that if we get a bigger boat, and need a loan, that boat is going to have an enclosed head and a galley!