writing off upgrades

[rebel heart]

Hey everyone.

I was talking to a friend mine who has sold a few homes, and he explained something like this:

- You buy a home for $100K.
- You spend $30K on upgrades.
- You sell the house for $170K.
- You only have to pay taxes on $40K, since that's your earnings.

Just wondering if anyone knew about the same rules for boats.

[senormechanico]

These days in the USA, that 140k that you spent over the last couple of years is probably now worth about 100k.

In the old days a $20 gold piece (1 oz.) would buy you a very nice suit. Nowadays one ounce of gold is worth about $800 and will buy you a very nice suit.

Steve B.

[rebel heart]

Huh?

I'm just wondering if I can write off boat repairs and upgrades. If I can keep from paying tax on them, that's a big gain in my book.

[David M]

If your boat is a business then you can write off all the expenses. If your boat is for personal use then no. This is coming from my wife who is a CPA. If you choose to buy and sell boats as a business then you are taxed as a business....the same as people who flip houses.

If your boat is your vacation home (second residence) then you can deduct the loan interest.

There is more to it...go see a CPA.

[dohenyboy]

Yes a boat is a capital asset under the internal revenue code, regardless of whether its use is personal or business. Therefore the same rule applies as to computing the gain.
Its rare that you can sell a boat for a lot more than you paid for it, though. I wonder how many people remember to claim the gain on their tax return.
also need to distinguish between maintenance (which does not adjust your basis) and capital improvements (which do).
The CPA wife was not asked the right question. Then again, I am not a CPA, just studied tax at New York University Law School and am CFO of 4 public companies.
You might wish to review IRS Publication 544, Sales and Other Dispositions of Assets.

[delmarrey]

Here in Washington State some boats are considered a residence. 'Up grades' maybe allowable but maintenance would not. There is a very fine line between the two. They would surely have to be add-on's rather then replacements. And it seems the only add-on's to a finished boat would be electronics or other minor part to the vessel.

One would really have to add-on a lot of up grades to make a substantial deduction or to even raise the value of the boat enough to make it worth the effort.

[rebel heart]

Thanks for the info; it's kind of what I figured. I'm sure the dollar amounts aren't much, and selling a boat is obviously not the same thing (as far as return value) when selling a house.

But we picked up our HC for $59K, and if I play my cards right we might be able to sell it for $70K one day (or not, just speculating), so if I can not pay capital gains (or whatever tax it is) on the $11K, I'd be happy about that.

Either way, any money I can keep myself and not give to the government is good with me. Maybe some people have more cash than I do, but a "few thousand here and there" add up quick.

Thanks again; I'll check the IRS pubs.