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Set sail for mortgage interest deductions

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in Small Business Tax,Small Business Tax Deduction Strategies

Do you own a boat that’s a virtual “home” on the water? Or are you looking to buy a seagoing vessel that can provide many of the same creature comforts as your main digs?

Strategy: Don’t forget to claim “mortgage interest” deductions for the boat. If you meet certain requirements, you’re entitled to deductions for interest you pay, just like the mortgage interest paid on a second home.

Generally, you’re allowed to deduct the qualified mortgage interest paid on a principal residence and one other home such as a vacation home in a resort area. The IRS limits the deductible amount to interest paid on acquisition debt of up to $1 million plus interest paid on home equity debt of up to $100,000 (when permitted by state law).

The IRS defines a home for this purpose as “a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.” If your boat has a galley, sleeping quarters and a head, you should qualify. But you can’t simply throw a cot on the deck of your pontoon boat.

Tip: If you claim interest deductions for a boat as a second home, you might have to forgo deductions for another place. Consider all the tax angles.

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