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Navigate tax rules for boat interest

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in Small Business Tax,Small Business Tax Deduction Strategies

If you own a boat that provides some of the creature comforts of home, you may be entitled to tax benefits normally associated with a dwelling.

Strategy: Claim “mortgage interest” deductions for the boat. As long as certain requirements are met, you’re entitled to deductions for interest you pay, just like the mortgage interest paid on a second home.

In the past, Congress has threatened to crack down on this tax break. But the Tax Cuts and Jobs Act (TCJA) left it unscathed.

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. Under the TCJA, the deductible amount for 2018–2025 is limited to interest paid on acquisition debt of up to $750,000 of acquisition debt, down from $1 million. But, in general, deductions are no longer permitted for interst paid on home equity debt.

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.” In other words, if your boat has a galley, sleeping quarters and a head, you should qualify. But you can’t simply throw a cot or sleeping bag on the deck.

Tip: Of course, if you claim interest deductions for a boat as a second home, you might have to forego deductions for another place.

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