Boat Finance and Tax Question

[Rick Webb]

Assuming rates are still low does it make sense to leave my boat paid off? Last time I had it almost paid off I refinanced it took the extra money and paid off a couple of credit cards (probably run up by buying things for the boat) and kept taking the interest deduction on our taxes. So here is the question for all you tax and finance guys before you start to get busy with next years tax season does this make sense to do again when we get the boat nearly paid off?

 

[Steve Kamp]

Mortgage interest vs tax deduction

Weigh the cost of monthly payments for a year against the change in your tax liability generated by using the mortgage interest deduction. You will come out better not paying the monthly payments. Steve

 

[Fred Ficarra]

Yep, Think of it this way Rick.

You don't get to deduct any more than the actual interest that you pay. And interests, by definition, is a fee for money you borrow, due when you pay part of it back. So when Congress says you can deduct the interest from your taxes, they are only letting you take the interest off of your declared income, NOT THE TAXES YOU OWE! That's what ADJUSTED GROSS INCOME (AGI) means. If at all possible, save your money and pay cash. Even interest free loans are offset with higher retail charges. Cash talks.

 

[menestheus15689]

well..........

it only makes sense if your useing the money you borrow to pay off hi interest credit cards but if your just going to run them up again then you probably should just stay where your at.

 

[Rick Webb]

Checked the Interest

Our loan would be 6.2% which makes for about $400 a year in interest probably not worth dealing with. Guess if it were a bigger boat it might be different. Maybe we should buy a forty footer to make it worth while.

 

[Moody Buccaneer]

Something is better than nothing ...

If you can write-off the interest on the boat loan and cannot write-off the interest on the plastic, it makes sense to take what you can get and pay off the non-deductible interest with a loan that has deductible interest.The best plan of course is to carry no credit card debt.

 

[Ross]

If you are in a 30 % tax bracket

it would ammount to about $120 per year. I don't know what your rate of earning is but my incone would justify that much of a saving.

 

[Steve_Catalina]

Compair interest Rates

Boat loans from broakers are 6.6% for 50-99K currently, per Annapolis boat show today.HELOC loans (Home Equity Line of Credit)are about 7.5-8.2%. Depending on closing costs it may very well make sense to refi.Example: Credit card interest may be 12-21% and boat or HELOC interest rates may be 6.6-8.2%. Do the math, which is cheaper money?, not the credit card dept. Pay them off, change your habits or you will be in the same boat again shortly.

 

[Rick Webb]

Checked out the Deduction on Last years Taxes

A $400 increase in the mortgage deduction neted a $60 reduction in what we would have paid. No balance now on the credit card and it is 10% interest. Could throw it at the car loan or the mortgage they are pretty close to the same rate of interest and would not pay off either one so there seems to be no reason to refinance the boat loan. I had not thought of just plugging the numbers into the tax program just to check. It made sense last time to pay off the plastic with cheaper money.

 

[Bryce22345]

tax vs cash position

Rick my accountant once told me. there's tax position and cash position. for easy math, assume $1,000/month interst and a 30% tax rate. if you have the mortgage, your tax position on the $1,000 is $700, ($1,000 less the 30% the government pays)however your cash position is -$700 (you still paid the bank). with no mortgage your tax position is $1,000 and you pay $300 in taxes, but your cash position is +$700. if you can afford to payoff the boat, I think its a no brainer.BryceS/V Spellbinder