Declaring a boat as your primary residence?

[Cheechako]

Originally Posted by artisanmach

it's complicated because the boat is co-owned with my girlfriend who still lives in Oregon.
it shouldn't matter where the boat is registered. I made no revenue in Oregon and was living in Washington.

The bolded word is your first mistake... remove that word from your vocabulary when dealing with Govt of any sort.

[Schooner Chandlery]

Originally Posted by RickG

Taxes in accounting are like friction in physics, life is simple without them.



We sold our house in June, buying our liveaboard this year and moving aboard full time next year. So, we get to shelter our carryover investment from the sale of our house to the boat and deduct interest and expenses on any financing.



That's just a warm up.



We'll register the boat in Florida to get our residency there, but live aboard in Maryland for more than 90 days. Maryland is a harsh mistress, excise tax is due after 90 days cumulative in Maryland waters. No Florida sales/use tax is due since we will not bring the boat into Florida for the first six months we own her. We may buy the boat in Virginia. No Maryland income tax for us because we'll be out of state the majority of the year. Florida has no state income tax. Our first full year of owning the boat we'll do the ICW to at least Georgia.



Who do I pay?



Cheers, RickG

There is no longer a 'carry over' shelter like that. Now (and for a least the last 10 years) anyone selling a primary residence gets a tax exclusion for 250K (500K for a couple) capital gain on it. No tax due and the gov't doesn't care if you replace the home with another. No carry over.

If you do take the boat to FL eventually 1 year or 10 years from now and keep it there (as a resident) they will want to see proof of your paying sales tax on the purchase equal to what you would have paid there. Otherwise you pay it there.

Sent from my iPhone using Cruisers Sailing Forum

[fryewe]

Originally Posted by Going Walkabout

OK. A question. And please don't attack me for looking at ways to legally minimise my taxes.

If I draw up a loan note with a member of the family that has no income and pay interest to that person ( for structuring it could be a number of non income earners in an LLC) . Now I deduct the interest payment as either a first or second home. Is this workable under IRS rules?

Your family member(s) would then have interest income, and such an arrangement might simply move tax liability from you to the family member. The amounts, and whether a net advantage was gained, would depend on tax brackets and filing status and other factors.

[GoingWalkabout]

Originally Posted by fryewe

Your family member(s) would then have interest income, and such an arrangement might simply move tax liability from you to the family member. The amounts, and whether a net advantage was gained, would depend on tax brackets and filing status and other factors.

I said payment to a family member that doesn't have an income. In other words the money they receive from the loan documents is the only income they receive. If you have say two or three non earning relatives you could make them members of an LLC that can distribute the interest income so as to keep it under the individual taxable threshold.

Under IRS rules you can also gift the original money your using to purchase the boat to say your non earning children. Or for a cheeky twist you loan it to them or their LLC with a lion say over the LLc.

For the loan from say the LLc to be valid the LLc needs to have a lien over the boat. But you can make a loan to the LLc with the original money and in your loan document you can have a lien over all the assets of the LLc.

Now if this arrangement run afoul of the IRS because the loans are not arms length transactions I would think you could put trusts and other structures in place. Though I haven't found any arms length rulings or rules regarding third party loans for valid tax deductible interest. Could be the loan has to be made by a non related person or entity. But as I said you can use trusts or other entities if needed.

$100,000 boat loan paying an annual interest of say 25% would give a $25,000 tax deduction. It would be income for those receiving the $25,000 so you may need to have two or three as the lenders and receivers of the interest. If you loan the lenders the original money at say 30% and they don't pay you back you could get a tax write off if you made available the original money from a company. Of course this is all about shifting money around to gain a tax deduction. It could be seen as a scheme to defraud the IRS so I'm not going to do it. But it's kind of fun to think these things up.

[Schooner Chandlery]

Originally Posted by GoingWalkabout

I said payment to a family member that doesn't have an income. In other words the money they receive from the loan documents is the only income they receive. If you have say two or three non earning relatives you could make them members of an LLC that can distribute the interest income so as to keep it under the individual taxable threshold.

Under IRS rules you can also gift the original money your using to purchase the boat to say your non earning children. Or for a cheeky twist you loan it to them or their LLC with a lion say over the LLc.

For the loan from say the LLc to be valid the LLc needs to have a lien over the boat. But you can make a loan to the LLc with the original money and in your loan document you can have a lien over all the assets of the LLc.

Now if this arrangement run afoul of the IRS because the loans are not arms length transactions I would think you could put trusts and other structures in place. Though I haven't found any arms length rulings or rules regarding third party loans for valid tax deductible interest. Could be the loan has to be made by a non related person or entity. But as I said you can use trusts or other entities if needed.

$100,000 boat loan paying an annual interest of say 25% would give a $25,000 tax deduction. It would be income for those receiving the $25,000 so you may need to have two or three as the lenders and receivers of the interest. If you loan the lenders the original money at say 30% and they don't pay you back you could get a tax write off if you made available the original money from a company. Of course this is all about shifting money around to gain a tax deduction. It could be seen as a scheme to defraud the IRS so I'm not going to do it. But it's kind of fun to think these things up.

You're describing actions taken primarily or even solely for the purpose of avoiding taxes. That, in the USA, is not legal and will get a person or company in a lot of hot water. Not worth it.

[Cottontop]

Originally Posted by GoingWalkabout

I said payment to a family member that doesn't have an income. In other words the money they receive from the loan documents is the only income they receive. If you have say two or three non earning relatives you could make them members of an LLC that can distribute the interest income so as to keep it under the individual taxable threshold.

Under IRS rules you can also gift the original money your using to purchase the boat to say your non earning children. Or for a cheeky twist you loan it to them or their LLC with a lion say over the LLc.

For the loan from say the LLc to be valid the LLc needs to have a lien over the boat. But you can make a loan to the LLc with the original money and in your loan document you can have a lien over all the assets of the LLc.

Now if this arrangement run afoul of the IRS because the loans are not arms length transactions I would think you could put trusts and other structures in place. Though I haven't found any arms length rulings or rules regarding third party loans for valid tax deductible interest. Could be the loan has to be made by a non related person or entity. But as I said you can use trusts or other entities if needed.

$100,000 boat loan paying an annual interest of say 25% would give a $25,000 tax deduction. It would be income for those receiving the $25,000 so you may need to have two or three as the lenders and receivers of the interest. If you loan the lenders the original money at say 30% and they don't pay you back you could get a tax write off if you made available the original money from a company. Of course this is all about shifting money around to gain a tax deduction. It could be seen as a scheme to defraud the IRS so I'm not going to do it. But it's kind of fun to think these things up.

You might want to have a look at the economic substance doctrine and sham transaction rules.

[GoingWalkabout]

Originally Posted by Cottontop

You might want to have a look at the economic substance doctrine and sham transaction rules.

I agree. But at the end I did say.

"It could be seen as a scheme to defraud the IRS so I'm not going to do it. But it's kind of fun to think these things up. "

The days of creative structuring are well gone. Best thing to do is pay what you need to pay and then go sailing.

[denverd0n]

Originally Posted by Schooner Chandlery

There is no longer a 'carry over' shelter like that. Now (and for a least the last 10 years)...

The change was the result of the Taxpayer Relief Act of 1997. Yes, 1997. Almost 20 years now, and you still see people who believe that the rules haven't changed. Kind of amazing to me to think that there is so much misinformation out there about income taxes. A warning for anyone who thinks internet forums are a good place to get tax advice!

[RickG]

Yep, this is a year for a meeting with the tax attorney. Downsizing is not so simple as just selling your stuff.

Cheers, RickG