Conference unifix::sailing

    
>>>    	2) Are there any other deductions that can be taken? For example,
    there is a significant amount of money spent each year on maintenance
    and upkeep, as well as supplies and Coast Guard required safety
    equipment.
    
Maintenance, repairs, etc, for your house aren't deductible. I'm sure 
that they're not deductible for a boat owned for personal use only.

    I believe that to qualify as a second home you must live in it for
    two  weeks  during  the  year. That seems to mean that you have to
    spend any 14 nights on board, and doesn't require 1 week stays.

--David

    
    Our accountant told us that in order to claim it, we had to get
    the bank to send us a special interest form, like they do on your
    house interest.  This form has a special federal # on it, it's not
    just a statement saying how much interest you payed on the loan.
    
    Also, one draw back is- if you do claim it- if and when you sell
    the boat you'll have to pay a capital gains tax.
    
                                Mary Ellen  

    re .3
    Does it follow that if you "buy high, sell low" you get a capital
    loss?
    
    Ed

re .3:

My impression is that owe capital gains tax if you sell anything you own
at a profit. Whether or not you've deducted interest on the mortgage
doesn't matter. Of course, now that inflation is lower and given the
sorry state of the preowned sailboat market, selling a boat at a profit
is, shall I say, unlikely. 

    
    re .5
    
       I guess I was thinking of our situation- we recently bought a
    vintage 30' Hinckley (wooden) in great condition for a steal.  We
    found a "REAL" anxious seller, and if we turned around and sold
    it now, we'd likely make a profit.

    re .6
    
    I don't think that it makes any difference if you claim an interest
    deduction or not...  If you sell at a profit, you have to pay taxes
    on the profit.  If it qualifies, the profit can be taxed as capital
    gains, othewise, it is taxed as ordinary income.
    
    Regards,
    John

re .3:

According to the IRS instructions, all that is necessary is that the 
mortgage on the boat be secured by the boat. If, perchance, you are 
audited, it would be nice to have good documentation to this effect.

    Frank,
    
    If you haven't already, call the IRS and order Pub. 17 (FYI Pub. 17
    will explain all you need to know about filing individual tax
    returns). There you will find:
    
    1) Based on your boat's description, you CAN deduct 100% of the
       interest as secondary home mortgage interest. (Pub. 17, page 130, 
       "A home can include a house, cooperative apartment, condominium, 
       house trailer, or boat, provided it includes basic living 
       accommodations, including sleeping space, toilet, and cooking 
       facilities."
    2) The interest should simply be rolled up with your primary mortgage
       interest (in your case $0 + $3000) and included on Sched. A, line
       9a, under "Deductible home mortgage interest you paid..." Also see,
       Pub. 17, page 130, "... you may include the following interest..."
    3) Interest is the only deduction available to you.
    4) Generally, "capital gains" will NEVER be incurred from the sale of 
       a boat. If you ever incur a capital gain from the sale of a boat, 
       please let us all know how you did it! (just joking here!)
    
    Living aboard for two weeks or more only pertains to you "if the home
    is rented out." (Pub. 17, page 129).

    There is no need for any 'special' bank statement of interest (you
    must ALWAYS "have adequate proof" of any deduction, a simple bank 
    statement will do). 

    And (of course), this is just my opinion. Read Pub. 17 and make up 
    your own mind.

    Gary H... 
    :-)

      TAXES: The hole in the government where I pour my money.

    
    Re: .9, .10
    
       I tried calling the IRS 800 number for tax information and the lady
    I spoke with said, basically, "Yeah, I've heard that you can do that,
    but I'll let you speak with someone who knows more than I do." After
    holding for about 10 minutes I gave up.
    
       There's an IRS office about 1/2 hour from me, so I'll go and
    pick up Publication 17 later today. From your notes, it seems I
    shouldn't have any trouble deducting the full $3000. This will mean
    I probably get a return again this year instead of paying. Thanks
    for the help Gary!
    
    
    Frank
    

On the tax deduction issue..

Does it matter what type of loan you obtain in order to write off the interest
on a boat???  Would a home equity loan work?? or do you need a personal/boat
loan??  

    The interest on a home equity loan is tax deductible as long as you do
    not exceed the IRS guidelines on total loan values, etc. (most people
    do not exceed this...your interest may vary...check with your tax
    person). The interest on a boat loan is deductible if the boat meets
    the IRS criteria of having a head, galley, and sleeping
    accomodations...ie. it is classified as a second home. One way to
    insure that this is non-controversial is to take out a mortgage on the
    boat through a bank or other marine lender. I believe that this
    mortgage is then filed similar to a home mortgage and becomes public
    record. I remember signing something like this when I financed my
    current boat 2 years ago. It was a bank loan (Maine Savings) and the
    boat is documented (not sure if that is relevent).
    
    It turns out that from a tax deduction perspective, the home equity
    loan is currently a best bet for many types of loans (education, auto,
    etc.) due to the fact that most other types of personal loans and
    credit card interest is no longer deductible.
    
    Fred Smith
    

    re .12 
    
    Isn't the tax deduction issue determined by if the boat meets the
    qualifications as a second home?  I do not remember all requirements
    but as I recall you need to have a head, galley and sleeping capability
    and stay onboard for at least two weeks a year.
    
    I have a 15 year boat loan and I am taking the interest deduction as a
    second home.
    
    Chuck

    RE:  14
    
    Based on a discussion with my Tax Advisor; the criteria outlined in
    note 14 is correct.  A boat can be classified as a 2nd home, providing
    it has sleeping quarters, cooking facilities, and full bath (ie:  head,
    sink and shower) facilities.  You can fully deduct loan interest and
    taxes paid if your boat meets the 2nd home criteria.  Although I don't
    know anyone who would do so; if you buy a boat for rental purposes,
    don't use it yourself for more than 14 days in the tax year, and
    declare the rental income, than you can take all the deductions that
    you can take for any rental property, including depreciation, travel
    expenses associated with rental, storage fees, security costs, etc.,
    Hope this is of help.
    
    Jay

    re .15
    
    In my case I take the deductions that a 2nd home qualifies for,
    interest and taxes.  Isn't your second example implying you intend to
    charter your boat out to qualify for the additional expense deductions. 
    I do not want to rent/charter my boat, but am I missing a opportunity
    or something here?
    
    Chuck
    

re .16:

Yup, you're missing an opportunity -- the opportunity to spend an 
unpleasant hour or two discussing your tax return with an IRS auditor 
before writing the IRS a check for back taxes and penalties. 

My reaction to the IRS is exactly the one the IRS wants -- fear.

:-)

    Re: .17
    
    Alan, there's another side to this coin. I just had this  wonderful
    opportunity to meet with the IRS a couple of weeks ago. But the results
    were the opposite of what you fear; instead, they'll be writing me a
    five figure check (plus interest) for what they owe me. I was
    calculating depreciation on a 15 year straight line class, which the
    auditor changed to a more agressive, 10 year declining balance. Nice
    guy too.
    
    However, anyone planning on this route had better get good tax
    advise, far more competent than you are likely to find here in our notes
    file and/or at your local H&R 'whatever' corner-store form
    fillers-outers.  There is 'no free lunch', as you will soon discover
    when it comes time to sell this wonderful asset and the term: Capital
    Gains becomes operative.
    
    You best be in a legitimate charter operation, too.
    
    John