Five Tax Breaks for Boat Owners That Often Go Unclaimed

by Darwin on June 12, 2014

It’s no secret that owning a boat can be expensive, but for those who love boating that expense is a necessary evil. While managing the costs associated with boat ownership can feel overwhelming at times, there are few things that boat owners should keep in mind, especially when tax time rolls around each year.

There are some tax deductions and credits that people are generally aware of, but without the help of a dedicated tax attorney or accountant who is familiar with the tax laws surrounding boats, there may be a few of those credits that slip through the cracks. This is akin to throwing your hard earned money overboard, and no one wants to do that.

We’ll investigate five tax breaks that boat owners need to be aware of, and we’ll help you determine if those breaks apply to you.

Second Home on the Water

Many boat owners might not realize this, but your boat could qualify as a second home, at least according to the IRS, who will allow you to deduct the interest paid on the boat’s mortgage. Of course, not all boats will meet the criteria, so before you start start efiling the tax forms, be sure that your boat ticks all of the required boxes. – See more at:

The boat must have at least one sleeping berth, a functioning galley, and a head to be deemed livable, and you, the owner, must spend at least 14 nights aboard the vessel per year. Of course, if you are already taking the deduction on a cabin or other second home you can’t take another deduction on your boat.

You’ll need documentation from your lender to take the second home mortgage deduction, and it’s wise to speak with a tax professional before you file.

Office Space

For those who conduct business on their boats, such as fishermen and charter operators, you may be able to take the home office deduction. The IRS can be very strict with their qualifying requirements on this one, so make sure you read the fine print.

For the home office deduction the vessel must have a working head and galley, and the boat must the main office location for the business. The space designated as the office must not be used for any other purpose. Factoring in depreciation, utility costs, insurance, and mortgage interest is part of the deduction process. If you’re already claiming the second home mortgage deduction you won’t be able to claim that interest on the home office deduction.

Again, this one can be complicated so it’s in your best interest to consult a professional before you file.

Be Your Own Captain

If you’re actively chartering your vessel for fishing or pleasure excursions it might be wise to see if you qualify to include that money as earned income for the year.

The IRS and insurance companies will require that you have a skipper’s license from the US Coast Guard that allows you to charter paying customers, but once that license is in place, you’re in business. Most tax professionals advise charter owners to actively try to make a profit, or the IRS may view your efforts as nothing more than a hobby and deny your claims.

Once the income has been established as legitimate, you’re able to deduct the costs associated with your venture, which can include mooring and fuel costs, repairs, and the depreciation of your vessel.

Charitable Donations

Many people are aware that they can donate cars to various charities and receive a tax deduction for doing so, but some might not know that boats fall into that category as well. If you have a boat or other watercraft that you’re no longer using, donating your boat to charity might be a great way to offset other tax liabilities.

The IRS will require that the charity has 501(c) status, which allows them to accept donations that are tax deductible. You’ll also need to establish a fair market value for your vessel and arrange to have it appraised if that value exceeds $5,000.00. Many charities can assist you with these tasks, and even arrange to have your boat picked up, in some cases.

Be sure to keep all receipts and documentation related to your donation.

Capital Gains

If you sell anything for profit you’re likely going to be subjected to a capital gains tax, and that can take a large portion of what would otherwise be money in your pocket. If you purchase a boat at a great price and want to sell it, it’s best to implement a strategy before doing so.

If you’ve done any improvements to the vessel or you have added equipment, this can help to offset the tax you’d owe upon the sale. Keep meticulous records and file every receipt related to any work or repairs that you’ve completed prior to the sale.

The more that you know about taxes and how they relate to your boat, the better you’ll be able to save some money at the end of the year. Follow these tips and consult a professional, and it’ll be smooth sailing come tax time.

{ 1 comment… read it below or add one }

The Wallet Doctor June 15, 2014 at 8:50 pm

Making use of the home office deduction is a great idea! With technology making it so easy to get work done remotely, I would guess that many people conduct business on their boats. If the deductions are there it is definitely worth taking them!


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