Taxes

[Captain Bill]

You do not have to live on the boat to deduct the loan interest, but it must meet the IRS qualfications. It must have a sleeping area, head, bathing facilities (shower will do), and cooking facilities. The loan must also be collateralized by the boat. That is you must get a boat mortgage, not a signature loan or a second mortgage on your house to pay for it. It then qualifies as a second home under rules for second homes. I did this with my boat and it did cause some issues. The first is that holders of boat mortgages don't send home interest statements to the IRS so there's typically no documentation to support your claim when you send in your 1040. There's also no form to show that the boat meets the qualifications for a second home. More fun to come. There's no form to show the loan is collateralized by the boat. So you itemize your deductions and take your deduction anyway. About 16-18 months later the IRS gets around to sending you a bill saying there's no documentation for this $xx,xxx.00 deduction for Mortgage interest and that you owe $xx,xxx.00 plus penalties and interest and you have 30 days to pay or show why you don't owe this. Then you make copies of your title or USCG documentation to show you own the boat, your loan documents showing the boat is collateral for the loan and a statement from the bank saying what interest payments on your loan were for the year in question. You'll have to ask for this from your loan company, but then again you probably had to do that to take the deduction originally. You then take pictures of the boat showing the name and registration/documentation number, The head, galley, sleeping area, and shower. You package it all up with a nice polite letter stating that you are claiming a mortgage deduction under IRS rules (don't recall which one exactly) that allow mortgage interest deductions for boats used as a second home and that your boat qualifies as demonstratated by the attached documentation. Remember to fill out and include the correct forms which were sent to you with the demand for payment and do it within the alloted time period. In about another 30 days or so you'll get a letter from the IRS thanking you for the documentation and agreeing that your deduction is legitimate and that you owe a balance of $0.00. The letter will further state that they now consider the matter closed. At least this is what happened with me. I can see how this could have dragged out for months or years had I not sent them all the documentation with my first response or if I was unable to document any of the required items. They did not specifically ask for the documentation, but it was pretty easy to anticipate what they would ask for and offer it up immediately rather than get into a long back and forth with them over this.

This happened the first year I took the deduction. I have not heard from the IRS on this matter in subsequent years. I don't know if the documentation is a permanent part of my file now or what. If I ever do get a letter for subsequent years everything is stored on my computer and I'll simply update the documentation with the interest statement for the year in question and send it to them again. It might take an hour's effort, but worth it for a $xx,xxx.00 tax deduction.

As a disclaimer I'm not giving tax advice, only relating a personal experience.

[Brent Swain]

The BC government has just raised the provincial sale tax on boat sales to 12% making the total with federal taxes 18%. Great job creating stimulus for the boasting industry.Boaters will still vote for them. Black market for boats will florish.

[off-the-grid]

For anyone applying for the home buyer credit. You may also want to send a few photos of the boat and a letter explaining that it's a boat. They're not too bright over there. I sent the sales contract, which is all that's really required, which pretty clearly shows that it's a boat. Even sent a copy of the mortgage, which they don't even ask for, which says "Ship Mortgage" right on the front page. They still sent me a letter asking for an HUD-1. Also, put your name and SS# on the top of every page. Apparently paperwork getting lost over there isn't all that rare.

[Brent Swain]

When a reporter in Toronto asked a couple of USainan tourists " What do you tell your countrymen when they ask" Canada? Where's that?" They said "We tell them "It's deep in the heart of Taxes."