Tax deductibility of interest on boat loans

[PDReynolds]

Hi All

I recently financed a newer model sailboat. I have seen some writings about the ability to deduct the loan interest for a given tax year.

Has anyone done this and are there special requirements that vary by state?

Thanks

 

[WayneH]

What I've "heard" is that the IRS will consider your boat a second home IF it has a galley, head and sleeping arrangements. A sailing friend of mine always said the only reason he did the Harvest Moon Regatta out of Galveston was so he could sleep on the boat one night a year to satisfy the IRS.

We bought our '80 Tartan out right so I can't claim any interest but I did claim the sales tax the year we bought it.

DISCLAIMER: I am not a tax consultant, just an average Joe trying to keep the government's fingers out of my wallet.

 

[JohnShannon]

No tax expert but. my tax guy said it counts as a second home if it has a head, and a galley.

 

[cb32863]

From my understanding, if it has a place to sleep, a place to cook, and a place to relieve ones self, then it can qualify for the second home interest deduction. Now that being said, i am not a tax professional or should any information I give be construed as being a complete and true interpretation of current tax law.

Bottom line, contact the IRS or a tax accountant. They are far better qualified to answer your question.....

 

[justsomeguy]

For your 2012 return, it's still allowed. The future of the deduction is in jeopardy, however.
Read this entire publication carefully. It's a real :zzz:

Qualified Home

For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.

The interest you pay on a mortgage on a home other than your main or second home may be deductible if the proceeds of the loan were used for business, investment, or other deductible purposes. Otherwise, it is considered personal interest and is not deductible.

And the usual disclaimers apply here as well.

 

[Rick D]

Disclaimers

Ho, boy, have we been trained to be careful! Funny that most of these posts have disclaimers. I do the same thing on a lot of mine. Probably a good thing for full disclosure, Yea, I keep a mortgage on the house and boat for the interest deduction that nets only a small adjusted rate. I'd consider paying them off if the deductability were to disappear.

 

[Ross]

Re: Disclaimers

A mortgage is a very poor investment. At best it is a necessary evil.you pay 200 dollars in order to get a 60 dollar tax break.

 

[Rick D]

Re: Disclaimers

Depends upon your tax rate and the opportunity cost of capital. I am certain leveraging the purchases through mortgages has netted me a plus. The stocks I have throw off 3.5 percent in dividend income. I also like the idea of a bank having some skin in the game; sorta extra insurance. having said that, at my age and with my pension expiring in a few years, there will be no tax advantage so I will pay them off. Not much to pay off anyway.

 

[kenn]

Not being American, I've always been more than a little jealous about the deductibility of mortgage interest. On second homes, RVs and boats too?? [head explodes]

My smarter friends tell me it all balances out - the mortgage interest deductibility is (or was) reflected in US prices and interest rates - but still...

I will respectfully point out that mortgage interest deductibility was probably a factor in some Americans buying more house than they can afford, and other credit overreaches.

 

[Rick D]

Right...

Not being American, I've always been more than a little jealous about the deductibility of mortgage interest. On second homes, RVs and boats too?? [head explodes]

My smarter friends tell me it all balances out - the mortgage interest deductibility is (or was) reflected in US prices and interest rates - but still...

I will respectfully point out that mortgage interest deductibility was probably a factor in some Americans buying more house than they can afford, and other credit overreaches.

IMHO, since we need X tax revenue, the code will reflect the average reduction for those items and account for it. In a way, guys like Ross (and me soon) lose out since thy have no offsetting deductible interest. Although deductability does make mortgages on first and second 'homes' more attractive, again, IMHO, the mortgage crisis was more driven by the ability to pass off loans and incentives for providing loans thus creating an environment for little loan underwriting. But, this is mere opinion and hardly helps my sailing.....

 

[Scott T-Bird]

Rather than have a boat loan secured by the boat, I would rather get money from a home equity line of credit and pay cash for the boat. The interest deduction is then qualified by the 1st home. I would probably buy a 2nd home that way as well, if I were inclined to do so, and was concerned about the interest deduction disappearing for a second home.

Alas, our over-reaching government may be inclined to eliminate these deductions in their greed for our money. After that, they'll cast their greedy eyes on our retirement accounts and bank deposits.

 

[Joe]

Hi All

I recently financed a newer model sailboat. I have seen some writings about the ability to deduct the loan interest for a given tax year.

Has anyone done this and are there special requirements that vary by state?

Thanks

If you take tax advice from anyone that won't represent you in an audit it isn't worth much..... at the very, very least go to a website or bulletin board that is tax oriented.

 

[thinwater]

A home equity loan can be a simpler way. Nothing to prove. If you don't have enough equity, why would you finance a boat?

 

[Birdman737]

Same disclaimer as everyone else, as I'm not a tax professional, but I do my own taxes as honestly as a can with TurboTax. The IRS allows ONE second home, which CAN be a boat if it meets certain requirements. I verified this myself not only with TurboTax but also on the IRS website, and you probably should too if you do your own taxes. So interest on boat loans are deductible as a second home for FEDERAL taxes.

Boat-as-second-home deductibility varies from state to state, however. In Wisconsin, boats may NOT count as a second home, so I have to make "state adjustments" to my deductions on my state return since Wisconsin uses the federal return as a starting point.

After owning two boats, both of which were financed, I have never gotten a Form 1098 from my lender. I have to get the "interest paid in xxxx year" info separately from the bank, then declare it on Schedule A and indicate "I didn't receive a Form 1098 from this lender."

And no, tax deductibility was not a factor in my purchase decision (it rarely is)... just a VERY nice break.

 

[Mikem]

Until our boat was paid off we deducted the loan interest. It was never an issue.

 

[Mike B]

Yes you can. You need to be able to eat, sleep and s#i% on it. Since the 423 has a galley, berth and head you're good to go. I've been doing so for several years now with 2 different boats. Had the IRS question me once since they didn't receive a form from the bank. Actual IRS rules do not require the bank to provide a form and once I pointed that out they were fine. Enjoy the 423 it's a very nice boat.
Mike

 

[NotCook]

It's also deductible as a first home, in which case home equity loans are not an option for financing your boat. It really isn't an issue, at least until they change the law...