How to Use a Boat as a Tax Deduction

How to Use a Boat as a Tax Deduction
Small boats without kitchen facilities don't qualify as second homes.

Loan Interest and Fees

If your boat meets the IRS definition of a second home, you can write off some of the expenses associated with your boat loan. To be considered your second home, your boat must have eating, sleeping and toilet facilities. According to DiscoverBoating.com, boats with a berth, a permanent galley and a head qualify. Taxpayers can deduct interest charges, points purchased and early payoff fees on boat loans on Schedule A. Ask your lender for an annual Form 1098, which details deductible expenses and saves you some calculation time.

Boat Sales Tax

Depending on your local tax rate, you may have paid a sizable amount of sales tax on your boat purchase. The IRS allows taxpayers to deduct either sales tax paid during the year or state and foreign income taxes paid. If you live in a state that doesn't levy a state income tax, you'll definitely want to opt for the sales tax option. Along with the sales tax for your boat purchase, you can deduct sales tax on your other purchases. If you don't want to dig up all receipts and credit card statements, you can use the IRS sales tax deduction calculator in lieu of actual sales tax paid. You can still include sales tax paid for specific items, like your boat, when using this method.

Boats as Entertainment Expense

Business owners can write off half of entertainment expenses as a business tax deduction. In most cases, you can host clients and customers on your boat and write off the incidental expenses, as long as the event has some business connection. The one notable exception to this rule is that you can't write off the entertainment expense if your boat is an entertainment boat like a yacht. Boat repairs and maintenance aren't deductible as entertainment expenses but you can deduct the cost of food, drink, supplies and fuel used during the event.

Boating Businesses

If you want to earn some extra income from your boat, you can claim boat expenses as a corresponding tax deduction. For example, you could offer harbor cruises on the weekends, informational nature cruises or whale watching and dolphin cruises. If you turn your boat into a business, you can deduct both the direct expenses incurred on the trip -- like fuel and food -- along with a portion of maintenance, repairs, insurance and property taxes. To be classified as a business -- which is required to deduct indirect boat expenses-- you must be actively trying to make a profit.