I've heard that a boat will qualify as a second home as far as the IRS is concerned if it has a head on board. Does it have to be a stand up // attached head? Is a galley required? Is there a minimum overall boat length too? How much of a break on taxes does it provide? It could make for a powerful argument to pony up to a CD 25 couldn't it? Thanks, C.W.
Boat Qualifies as Second Home for Tax Purposes?
- Thread starter CW
- Start date
All that's required is a sleeping platform, toilet and cooking facilities, and some indication that the owner stays overnight on the boat at least 14 days a year, according to Internal Revenue Service regulations. The tax break is similar to what one gets on a first home - e.g. the interest on the loan is deductible from your income and lowers your adjusted gross income. The net result is that you effectively get a portion of the interest back in deductions.
If I was you I'd justify the purchase on other factors. Fun, comfort, size, an enclosed head, the "cool factor" etc.
If I was you I'd justify the purchase on other factors. Fun, comfort, size, an enclosed head, the "cool factor" etc.
I believe the head has to be equivalent to a house toilet -- i.e., permanent, no porta potties. I don't think there is a minimum length.
The bottom line is that the amount you save is mostly a function of what tax bracket you are in. If you are only paying 22% on your income, then spending more to shelter more doesn't pay off because you aren't paying that much to begin with. If you are in a higher tax bracket then it makes more sense.
But consult your tax advisor for a better explanation! :smiled
The bottom line is that the amount you save is mostly a function of what tax bracket you are in. If you are only paying 22% on your income, then spending more to shelter more doesn't pay off because you aren't paying that much to begin with. If you are in a higher tax bracket then it makes more sense.
But consult your tax advisor for a better explanation! :smiled
Unless you are in the AMT range! Then many of these deductions go away!
I believe that the 14 days a year staying aboard is a requirement, but a porti potty does qualify. Protable cooking arrangements also will qualify, but it does need to be a galley, not a stove in the cockpit.
I believe that the 14 days a year staying aboard is a requirement, but a porti potty does qualify. Protable cooking arrangements also will qualify, but it does need to be a galley, not a stove in the cockpit.
I apologize if this sounds sanctimonious or preachy, but what sense does it make to go out and pay $100 in interest to save $20 (assuming 20% tax bracket) on taxes? If you must finance anyway, by all means take all deductions you are due, but I never have known anyone who got ahead financially by "buying up" to get a tax break; it keeps you on the wrong side of compound interest and boats (sadly including C-Dory's) are depreciating assets. Paid for boats run better! Looking forward to the SBS and meeting some of you. Mike.
CW,
The 22' does qualify for the tax benefit as equipped with a stove in the "galley" and with a porta potty, so as mentioned above don't base your purchase decision of a 22' vs a 25' on this issue at all. Base the decision on what best fits your needs and pocketbook. (Obviously, this write off is only applicable if financing your vessel and you are more money ahead to try to pay it off early if possible). (Just keep notes in your log book of the nights spent on your vessel to prove the 14 night requirement...marina slip fee receipts can be helpful as well).
When it comes to saving a bit of money.....although not necessarily much, you can submit to the State of Washington Fuel Tax Section for a "Fuel Tax Refund Permit" which may be used at "Marine Filling Stations" to avoid paying "road use tax" at the time of purchase.....or you can save your fuel purchase receipts from "land based gas stations" and "marine filling stations" for later reimbursement of the "road use tax". You can save and submit receipts back to 13 months. (I submit mine on a 12 month interval).
(If you utilize the search engine on this site for both of these subjects you will be able to locate previous discussions on both of these issues).
For C-Brats residing in different states, you will have to check with your state as to any "off road fuel tax" rebates offered by your respective state.
The 22' does qualify for the tax benefit as equipped with a stove in the "galley" and with a porta potty, so as mentioned above don't base your purchase decision of a 22' vs a 25' on this issue at all. Base the decision on what best fits your needs and pocketbook. (Obviously, this write off is only applicable if financing your vessel and you are more money ahead to try to pay it off early if possible). (Just keep notes in your log book of the nights spent on your vessel to prove the 14 night requirement...marina slip fee receipts can be helpful as well).
When it comes to saving a bit of money.....although not necessarily much, you can submit to the State of Washington Fuel Tax Section for a "Fuel Tax Refund Permit" which may be used at "Marine Filling Stations" to avoid paying "road use tax" at the time of purchase.....or you can save your fuel purchase receipts from "land based gas stations" and "marine filling stations" for later reimbursement of the "road use tax". You can save and submit receipts back to 13 months. (I submit mine on a 12 month interval).
(If you utilize the search engine on this site for both of these subjects you will be able to locate previous discussions on both of these issues).
For C-Brats residing in different states, you will have to check with your state as to any "off road fuel tax" rebates offered by your respective state.
matt_unique
New member
I researched the second home tax break with the IRS directly. A boat with a galley, head, and place to sleep is the same as a summer home on a lake in terms of the interest deduction.
What I have not researched is whether you can deduct the cost for certain upgrades. I suspect this will be more of a gray area but I have not yet looked into it. Anyone else researched this?
Thanks
What I have not researched is whether you can deduct the cost for certain upgrades. I suspect this will be more of a gray area but I have not yet looked into it. Anyone else researched this?
Thanks
Rob & Karen
New member
I don't think the 14 day requirement applies unless you rent your boat out.
Check the section titled "Second home not rented out" on page 2 of that attached IRS link.
http://www.irs.gov/pub/irs-pdf/p936.pdf
Rob
Check the section titled "Second home not rented out" on page 2 of that attached IRS link.
http://www.irs.gov/pub/irs-pdf/p936.pdf
Rob
Captains Cat
New member
matt_unique":7d4up6b1 said:
You can't deduct upgrades on your boat any more than you could deduct improvements to your house! Don't we wish.
:roll:
Now, if you rent your boat out, just as with a rental property, you can take the costs of upgrades/maintenance off the rental income but not to exceed the amount coming in. I don't think any of us want to do that!
It's nice to have the deduction but I'm sure it's not a good idea to buy a bigger boat just to get the deduction! We can't afford to save that much money!
Charlie
:beermatt_unique
New member
IRS Publication 936
>>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.
Main home. You can have only one main home at any one time. This is the home where you ordinarily live most of the time.
Second home. A second home is a home that you choose to treat as your second home.
Second home not rented out. If you have a second home that you do not hold out for rent or resale to others at any time during the year, you can treat it as a qualified home. You do not have to use the home during the year.
Second home rented out. If you have a second home and rent it out part of the year, you also must use it as a home during the year for it to be a qualified home. You must use this home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer. If you do not use the home long enough, it is considered rental property and not a second home. For information on residential rental property, see Publication 527.<<
You can read all the details of the full publication at the IRS website. I still need to research home improvements...there are some cases when you can indeed deduct these costs.
>>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.
Main home. You can have only one main home at any one time. This is the home where you ordinarily live most of the time.
Second home. A second home is a home that you choose to treat as your second home.
Second home not rented out. If you have a second home that you do not hold out for rent or resale to others at any time during the year, you can treat it as a qualified home. You do not have to use the home during the year.
Second home rented out. If you have a second home and rent it out part of the year, you also must use it as a home during the year for it to be a qualified home. You must use this home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer. If you do not use the home long enough, it is considered rental property and not a second home. For information on residential rental property, see Publication 527.<<
You can read all the details of the full publication at the IRS website. I still need to research home improvements...there are some cases when you can indeed deduct these costs.
He says, that it has to meet 3 criteria, first, it has to have a head, when asked if it could be a port-o-potty type, he told me that as long as it was a self contained type, that it did qualify, second, it has to have a cook stove and again if it could be of a portable style, he said as far as he was concerned, that yes it was acceptable and of course it has to have a sleeping quarters which could be utililized, it was as simple as that, he told me not to make it more complicated than the regulations ask for, so...
Rustydory":1ie770db said:
I don't think a Porta-Potty meets the definition of "self-contained." It certainly doesn't in the RV world, which is a much more common application of that rule. Here is one county's definition of self-contained, for RVs, which is probably related to the federal one:
A Porta-Potty is arguably not flushable. Most of them do not have a 5 gallon holding tank either.
Warren
Doryman":2249cn7v said:
This discussion came up years ago on a sailing forum. Most porta-potties do, indeed, flush - they have a fresh water compartment that flushes into the black water tank. And many sailboats have a kit with brackets to hold the potty when the boat is heeling... making a "fixed" installation that some folks read into the requirements. I suppose you could make the definition work on most of our boats, but (as has been mentioned) the only potential deduction will be on the interest on a financed boat.
Rob & Karen
New member
Under "Qualified Home" in the IRS link above, it states:
"A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities."
Why make it more complicated than the actual tax code?
Rob
"A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities."
Why make it more complicated than the actual tax code?
Rob
flapbreaker
New member
Rob & Karen":23hp00z8 said:
That has been my understanding and we deducted the interest last year on our boat loan (not a home equity either). Worked for us.
marvin4239
New member
My neighbor has two boats one is a 24' deep v offshore fishing boat. He only uses it to fish in local Kingfish tournaments. He claims he depreciates the cost of the boat same as you would business equipment since these are cash tournaments. I doubt this senario would apply to a C-Dory owner but if its true it's and angle that never occured to me.
1TUBERIDER
New member
Good luck looking for improvements that qualify as a deduction on a residence, Matt. Homes are not deductible unless used in business. On the sale of your home you don't even have to recognize the gain if it qualifies as your main residence (gains under limit). So why do you think improvements would be deductible? They are not .
Some improvements qualify for energy credits, maybe that is what you are referring to.
Deducting home mtg interest is beneficial if you can itemize or use the interest as part of a home office deduction. If you can qualify your home office then other household expenses can qualify as a deduction. And maybe Matt is thinking of the home office deduction.
I would buy a boat for the boating benefits. Tax benefits are available for boats used in business but not for personal use, other than the limited home mtg deduction of interest.
Jeff
Some improvements qualify for energy credits, maybe that is what you are referring to.
Deducting home mtg interest is beneficial if you can itemize or use the interest as part of a home office deduction. If you can qualify your home office then other household expenses can qualify as a deduction. And maybe Matt is thinking of the home office deduction.
I would buy a boat for the boating benefits. Tax benefits are available for boats used in business but not for personal use, other than the limited home mtg deduction of interest.
Jeff
I may be showing my lack of familiarity with the tax laws here, but what about the strategy of taking out a home equity loan to buy or pay off the boat. and then deducting the interest paid on that loan since it's against your primary residence?
(Yes, I know it's risky to use your residence as a source of an equity loan.)
Joe. :thup :teeth
(Yes, I know it's risky to use your residence as a source of an equity loan.)
Joe. :thup :teeth
Captains Cat
New member
Sea Wolf":27m1zold said:
Joe, makes sense to me. You've got to do the analysis though, interest rates, tax savings, etc. I've done it many times. All have since been paid off but your equity is a great source of financing.
I certainly wouldn't get close to more than 80% loan to value ratio at this time of falling real estate values though!
Charlie