How to write-off your boat loan interest as a second home for federal tax deduction in the U.S.
Boaters are always looking for ways to make boating more affordable, and writing off your boat loan interest on your tax return can provide big annual savings!
Yes, your boat loan interest is tax deductible!
Many boat owners in the U.S. can take advantage of boat loan tax deductions that make boat ownership much more affordable. Similar to the well-known home mortgage tax deduction, boaters with boats that meet certain requirements can deduct annual interest paid from their federal income taxes each year.
Taxpayers may use the home mortgage interest deduction for one second home in addition to their primary home, and must itemize deductions on their returns.
A boat qualifies as a second home for a boat loan tax deduction if it includes:
- a sleeping berth
- cooking facilities
- toilet facilities
So as long as it has a place to sleep, a head and a galley it qualifies! A boat that meets these requirements is considered a “second home” and the interest on the loan is tax deductible.
Changing Tax Deduction Laws?
It seems that every few years we hear talk about the boat loan tax deduction going away… and the truth is that it has been in jeopardy (as recent as for the 2014 federal income taxes).
Boat Owners Association of The United States (BoatUS), the nation’s largest boater’s advocacy group, has been at the forefront of boater issues such as tax deductions.
During federal budget negotiations last year, some in Congress sought to eliminate this deduction for boat owners while keeping it in place for second home and recreational vehicle owners. BoatUS advocated for a more equitable all-or-nothing approach when applying the deduction, and boaters did not get unfairly singled out.
The Tax Increase Prevention Act of 2014 extends mortgage interest deductions for qualifying boats when filing a 2014 federal income tax return.
Determining Total Interest Paid on Boat Loans
BoatUS notes that some boaters may be unaware of the potential tax benefit of boat loans because not all lending institutions send borrowers an Internal Revenue Service form 1098 which reports the interest paid.
Not receiving the form does not preclude taking the deduction. If a 1098 is not available, boaters should contact their lender for the amount of interest paid and should enter it on line 11 on Schedule A along with the lender’s tax ID number. If a form 1098 is sent, boaters should simply enter the amount on line 10 of Schedule A.
(We always make calling our boat loan lender for the annual interest paid total part of our annual tax preparation.)
BoatUS also notes that for those who fall under the Alternative Minimum Tax, most deductions are unavailable. Boaters are urged to contact a tax preparer or financial advisor for more information.
For more details on the mortgage deduction on boats that qualify, go to www.IRS.gov and download Publication 936 or the Fact Sheets. For state tax deduction information, download Publication 600 which also includes state-by-state tax tables.
States Sales Tax Deductions for Boats
If you purchased a new or used boat last year you may be able to deduct the state sales tax paid.
The Tax Increase Prevention Act of 2014 continues to offer a federal tax deduction for state sales taxes. Boaters must choose either the state sales tax deduction or state income tax deduction on their federal tax return — you cannot take both.
In addition, to take the state sales tax deduction, the sales tax on a boat purchase must be applied at the same tax rate as the state’s general sales tax. In order to claim the sales tax deduction, tax returns must be itemized. State sales taxes are entered on IRS form Schedule A, line 5b.
As always – check with your tax advisor to maximize all deductions and ensure you are doing it right!
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