Ed note: OK, taxes are pretty serious business. But with something fun – like summer boating – we just couldn’t help but get a little “punny.” We hope it makes you smile, with the added benefit of helping you maximize your tax refund.
If you are thinking about giving into “pier” pressure and buying a boat, here are some seaworthy tax tips that are see-worthy.
Mortgage Interest
The single biggest tax deduction you can likely use for your floating abode is the mortgage interest deduction for the interest you pay if you finance the boat and make payments over time. However, not all financed boats will qualify.
To qualify, you must pay mortgage interest on a loan secured for your main or second qualifying home. To qualify as a home, your property must have cooking, sleeping and toilet facilities. This means a houseboat would be considered a second residence, but a ski boat would not. If your boat meets these requirements, and you do not rent or sell it at any time during the year, you can treat it as a qualified home, even if you don’t sleep in it.
This deduction is often overlooked because boat lenders don’t issue Tax Form 1098, which you’d receive with your main home loan. But if you already qualify for the deduction, this form is not necessary. For other requirements needed to claim this deduction, you may want to visit this article.
Sales Tax
If your boat is less of a yacht and more of a, you know, regular boat, there are still some potential tax benefits. Taxpayers who itemize their deductions have the option of claiming either state and local income taxes or state and local general sales taxes. If you elect to deduct sales taxes – say, if your state doesn’t have an income tax (I’m looking at you, Florida and Texas) – you should save sales receipts and deduct the actual sales taxes paid. If you lose your receipts, use the sales tax tables provided by the IRS. Here’s where your boat comes in: using either method, you can also include the sales taxes you paid on your vessel, up to the amount that would have been imposed at the general sales tax rate. Get more detail here.
Personal Property Taxes
State and local taxes assessed on your boat are deductible if you itemize, provided that the taxes are based on the value of the boat and imposed on an annual basis, even if they’re collected more or less than once per year.
Business Expenses
Be careful here, because the IRS says you cannot deduct business expenses for a yacht used for anything that can be considered entertainment, amusement or recreation. The IRS is super strict when it comes to mixing business with pleasure in your deductions, so don’t go overboard – both literally and figuratively in this case. For example, if you entertain clients on your boat for a valid business purpose, you may be able to deduct event expenses, such as a portion of the food, even though the cost of the boat itself isn’t deductible.
There you have it – if you take these tips into account, it’ll be clear sailing when it comes to your taxes.
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