Liveaboard and Tax Writeoff

[Janae]

I recently purchased a boat in the Florida Keys - I bought it outright, so no loans or payments. I'm legally a resident of Arizona, and all my tax information is for AZ. I've heard I can write the boat off as a secondary home. I live on my boat 24/7, is there an option to write the boat off as a home purchase? In addition, would it be advantageous to file it for AZ or for FL? Any additional information would be helpful, this is my first 'large' purchase (I'm a whopping 26 years old) and tax deductions are still a bit of a foreign subject for me.

Cheers!

[Intentional Drifter]

I'm not familiar with either AZ or FL state taxes, so don't take this as meaning anything for the states. With US federal income taxes, the largest deduction is for home mortgage interest. If the boat has a cooking area, bed, etc and you sleep on it, you can deduct the interest you pay on a loan. You don't have a loan, so this gets you nothing.

If you work on the boat (as in "income-producing" work, not boat maintenance!) and you use it as a "home office", then you can deduct your costs associated with maintaining the boat in the proportion of the boat used for your "home" office. In other words, if 20% of the boat is your office, then you can deduct 20% of your costs.

In a similar fashion, if you charter out the boat to others, then it basically becomes a business. All of the rules for that then apply, and there's lots of them.

Bottom line: Read the rules about all this very carefully. It would also be a good idea to consult a tax professional.

ID

[djmarchand]

There is no option to "file it for Az or Fl". The federal govt doesn't care where your residence is. It is just like an out of state second home condo, cabin in the woods, etc. As ID said you can deduct interest, but you have none. You can also deduct personal property taxes on the boat, but I don't think Fl has them.

So insofar as a "write off" I don't think you have any, except for home office use as ID indicated.

[osirissail]

If you are living on the boat in Florida for more than 90 days and the boat is in Florida for more than 90 days you will need to "register" the boat with Florida and pay the appropriate sales tax or a "use" tax. Failure to do so may expose you to some nasty repercussions.

[sneuman]

Intentional Drifter is correct. The only caveat is that the interest paid is often not enough to surmount the standard deduction. I have been able to do use the interest deduction twice in four years and expect next year - the last year of my "mortgage" the interest will be too low again.

[MrBillFLL]

on the Bright side, there is no State Income Tax in FL.

looks like quite a bit in AZ.

Arizona Income Tax Rates - Arizona & other state tax rates information. AZ tax calculator.

[Zydeco]

As mentioned above, the "write off" for federal income tax for homes is a deduction for the mortgage interest paid. Since you don't have a mortgage (or any kind of loan) on the boat, there is no mortgage interest to deduct and therefore nothing to write off.

If you work from the boat and are considering taking the "home office" deduction, read the rules very carefully and get professional advice if you are in doubt at all. It used to be nearly impossible for most people to meet the requirements for the home office deduction. The rules were relaxed a bit, but there are still some fairly stringent requirements. In addition, the home office deduction is something the IRS takes a close look at because it is so often abused. The deduction may not amount to much of a savings so even if you think you qualify, you will need to decide if it is worth the effort.

If you end up paying Florida sales or use tax as mentioned by Osirissail, you may be able to take a deduction for the sales or use tax paid as an itemized deduction. Take a look at the rules for deducting sales tax on Schedule A. Depending on the amount of your itemized deductions, you may still be better off taking the standard deduction instead.

[wlstrong]

How about a different approach: deduct "business travel expenses" or "business vehicle expense"?

My primary residence is ashore, and as a self-employed computer consultant, I typically work 6-month contracts. I would like to live aboard Monday-Thursday, close to my work location instead of paying business-related travel expenses (hotel rental). When a contract is complete, I would like to move the boat near the next job location.

I would claim deduct this expense for a camper ashore, or a houseboat. The major expenses could be:

1- slip rental on location
2- maintenance expenses (proportional to business use = 5/7 of time used, for business)
3- fuel to move from one job site to the next
4- registration fees, sales taxes on the above
5- depreciation on a standard schedule (same useful life as a vehicle)
6- interest expense if financed (but not as a 2nd home)

What do you think, do I risk getting tossed in the brig by the IRS?

[osirissail]

Originally Posted by wlstrong

. . . What do you think, do I risk getting tossed in the brig by the IRS?

No, but you risk some serious hassle times trying to explain and justify it *should you get audited.* If you have not deducted these or similar expenses from your business income regularly in the past, you might raise a "yellow flag" in the IRS computer and get asked to "explain and prove" these expenses as relevant and necessary to your business.
- - Then again you might just "fly under their radar" and get away with it for years. If you Keep things below the "trigger" ranges set into the IRS computer you can get away with most anything for years. But there is always the chance you might get a "request for explanation" letter one day.
- - So is it really that much a "savings" in taxes to do it? Remember, the "standard" deduction and personal exemption amounts currently available make it rather difficult to get enough "itemized deductions" to exceed them unless you really have a lot of legitimate expenses already.
- - If you make your business into a Sub-chapter S corp or something similar then rolling in the "boat expenses" most probably puts you in the same category as the "big boys" with their mega-yachts that are deducted as "business expenses." But as a "sole proprietor" business or home-business you are getting close to the "edge" of attracting the IRS's attention.

[cabo_sailor]

I think you are asking the wrong people. Go to a tax lawyer and ask the same questions. I deduct the mortgage interest on my boat as a secondary residence but that's the limit. My father used to use his boat to entertain customers and deducted quite a bit more. Actually, his deductions were in line with what you are proposing but the IRS changed some rules and those deductions were no more.

Rich

[Pblais]

tax deductions are still a bit of a foreign subject for me.

My first boss deducted his boat as a business expense (entertainment). He got audited every single year and pulled it off. That included business and personal taxes. If you need to try this you need 100% bomb proof documentation. With the new rules, you don't need an invitation. The IRS profiles look for the low hanging fruit. This was back 30 years ago and with most things the old tricks are the ones that get tried the most. At this point a boat as a tax deduction is a fishing expedition into your whole life.

The easier way is to just quit working!

[rebel heart]

You can get tax niceties from getting alternative energy (regardless of its destination) as well as "insulation" improvements, which qualifies caulking, which is awesome because I burn through a few hundred bucks of the stuff each year.

[markpierce]

Whether or not you live on the boat, you can deduct the property tax, if any, if you itemize on the federal return and probably on the state return too. Also, you can deduct the sales tax, if you don't deduct any state income tax in the federal return. This is only relevant if the standard deduction is less than the total itemized deductions.