Can a Boat Be Considered a Second Home for a Tax Deduction?

by Mark Kennan

    Buying a boat can give you a new leisure activity, but it might also give you a tax break. If you've taken out a loan to buy the boat and the loan is secured by the boat, you might qualify to deduct the interest you pay on the loan as part of the mortgage interest deduction.

    Boat Criteria

    The IRS has an expansive definition of "home" for the purposes of the mortgage interest deduction. As long as the boat has sleeping, cooking and toilet facilities, the boat counts as a home, according to IRS Publication 936. If it's missing one of these elements, you can't treat it as a home, even if you make do with what it has. For example, if the boat doesn't have cooking facilities, you can't treat it as a second home even if you just bring along enough food that doesn't require cooking.

    Second Home Requirements

    If you don't rent out the boat at all, you don't have to satisfy the personal use requirements. However, renting it out for just one day triggers the use requirements. If you rent it out, you must use it for the longer of 14 days or 10 percent of the number of days you rent it out. For example, if you rent it out for a week, you have to use it for at least 14 days during the year for it to qualify. Alternatively, if you rent it out for 160 days, you have to use it for at least 16 days to qualify.

    Second Home Limits

    You can have only one second home for purposes of the mortgage interest deductions. For example, if you have two houses, one of which is your primary residence and one that you use as a vacation home, you have to substitute your boat for your existing second home if you want to deduct the interest on the boat loan. In addition, you are limited to deducting the interest on the first $1 million of mortgage debt -- $500,000 if you're married but filing separately -- so if you're already over the limit, your boat loan won't help you even if it otherwise qualifies.

    Claiming the Deduction

    Your lender may, but isn't required, to issue you a Form 1098, because the boat isn't real property. Form 1098 documents the interest paid on the boat loan during the year. If your lender does issue you a 1098, the interest paid appears in box 1. Simply report the amount of deductible interest on line 10 of Schedule A. If you didn't receive a Form 1098, you need to check your financial records or contact the lender to determine the amount of interest paid during the year. Then, report the deductible interest on line 11 of Schedule A.

    Photo Credits

    • houseboat in Kerala backwaters image by Schwabacher from Fotolia.com

    About the Author

    Mark Kennan is a freelance writer specializing in finance-related articles. He has worked as a sports editor for "Ring-Tum Phi" and published articles on a number of online outlets. Kennan holds a Bachelor of Arts in history and politics from Washington and Lee University.

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