Summer is almost here and many taxpayers turn to sailing and joy rides on the water. Be aware that there are beneficial tax breaks available to boat owners.
It’s well known that a home can be a valuable source of tax deductions while you own the place and a six-figure tax exclusion when you sell. But did you know you can reap tax benefits on both land and water?
If you’re a boat owner, you may be in line for the following tax breaks:
You may not think of your boat as a home, but you can claim mortgage interest deductions (within the allowable limits) for one qualified residence besides your principal residence. A boat meets the requirements if it has a galley, sleeping quarters and a head. But you can’t just dump a cot or sleeping bag on deck.
Depending on your situation, deducting sales tax instead of state income taxes might be more beneficial. You can choose to use a simplified IRS table in lieu of tracking actual sales tax expenses, and then add the sales tax for a boat to the table amount to increase the deduction. Be careful with your calculation — the deduction for state and local income taxes (SALT) caps at $10,000.
Just like a building, you may rent out your boat for fishing or sightseeing excursions. The basic tax rules for vacation home rentals apply. Typically, you may deduct related expenses like maintenance costs, fuel and supplies, plus depreciation. Keep in mind that a loss may not be available if you use the boat personally for more than 14 days.
If you’re upgrading or have lost your passion for boating, you can donate your boat to charity. Generally, the deduction is based on the fair market value (FMV) on the donation date, if certain conditions are met. You can find out the FMV for your boat, based on its condition, from an online guide. Or better yet, have it appraised.
Call an Alloy Silverstein CPA today with tax savings questions about your boat.
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