Tax Breaks for Buying a Boat

Although boats are often seen as a "money pit" because of expensive repairs and maintenance, purchasing one may be a tax deduction. Whether you can deduct the cost of purchasing a boat from your income depends on how you finance and use the boat. You probably have more options for boat tax breaks when you use it in connection with a business.

Mortgage Interest Deduction

You might only think of a red-brick residence as a home, but your boat can be a home, too. If your boat meets the qualifications of a residence -- such as having living quarters, a bathroom, sink and kitchen -- you can deduct the cost of financing the property under the mortgage interest tax deduction. You or your dependent must live on the boat at least 14 days out of the year, but you do not need to live there full-time. About 3 percent of all boats qualify as a second residence, according to "The Seattle Post-Intelligencer."

Other Expenses

The Internal Revenue Service allows you to deduct personal property taxes on a boat, such as state registration fees. The governing body must levy the tax yearly, even if it does not collect it on an annual basis. You also can deduct the state sales tax on the boat purchase. However, you cannot deduct both state income tax and sales tax on your federal return. Also, you must itemize your return to deduct sales tax. If you purchase the boat with a home equity loan, you can only deduct interest charges on balances up to $100,000 as of the time of publication.

Business Expenses

If you run a business, you can use your boat as a home office. Retailers can use the boat to store items. However, you must only use the boat for business use for most industries. Because you probably use the boat for some personal matters, it is likely that you do not use the boat exclusively for business purposes and cannot take the home office deduction. However, you might be able to deduct the boat as a miscellaneous business expense. For instance, if you use the boat to earn income by taking customers fishing, you can deduct maintenance costs, such as insurance and repairs, as well depreciating the value of the boat.

Considerations

Deducting a boat as a business expense will draw the attention of the IRS, because boats often are a luxury item. If you use your boat as a business, make sure you run it like a business and not a hobby, such as by advertising your company and keeping records. If the IRS finds your boating activities a hobby, you can only deduct expenses up to the income you earn from your hobby. If you fall under the alternative minimum tax, you usually lose any boat deductions, according to the Boat Owners Association of the United States.

References

• Boat U.S.; Tax Time Tip: Boat Owners May Have Federal Tax Deductions Available; March 2011
• "The Seattle Post-Intelligence"; Declaring Your Boat a Second Home Can Bring Big Tax Relief; Eric Nalder; November 2004
• IRS.gov: Topic 503 -- Deductible Taxes
• "Seattle Post-Intelligencer"; Small and Large Companies Use Boat Write-Offs; Eric Nalder; November 2004