Can a Boat Be Considered a Second Home for a Tax Deduction?
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.
If your boat has bathroom, cooking and sleeping facilities, then for IRS purposes, it qualifies as a home and you might qualify for a deduction on your taxes.
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, then the IRS treats the boat as a second 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 it doesn't have cooking facilities, you can't treat it as home for tax purposes, 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, if you use your boat as a business, even renting it out for just one day, this 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 take a boat tax deduction. In addition, for tax years prior to 2018, joint filers are limited to deducting the interest on the first $1 million of mortgage debt. However, for tax years 2018 and forward, you may only deduct interest on the first $750,000 of mortgage debt originated after December 16, 2017. 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.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."