Recreational boat owners who paid state sales taxes on a boat purchase, or those who secured a loan to finance a boat, may have some tax deductions coming to them when filing their 2011 federal income tax return. The tax tip comes from the nation’s largest boater’s advocacy group, Boat Owners Association of The United States (BoatUS).
The Sales Tax Deduction
For boat owners who paid substantial state sales taxes on a new or used boat purchase last year, the Tax Extenders Act of 2008 continues to offer a federal tax deduction for state sales taxes. Boaters must choose either the state sales tax deduction or state income tax deduction on their federal tax return – you cannot take both.
In addition, to take the state sales tax deduction, the sales tax on a boat purchase must be applied at the same tax rate as the state’s general sales tax. In order to claim the sales tax deduction, tax returns must be itemized. State sales taxes are entered on IRS form Schedule A, line 5b.
The Boat Loan Deduction
For those owners with a secured boat loan, mortgage interest paid on the loan may be deducted from your federal income taxes. Taxpayers may use the home mortgage interest deduction for one second home in addition to their primary home, and must itemize deductions on their returns. A boat is considered a second home for federal tax purposes if it has a galley, an installed head and sleeping berth.
During federal budget negotiations last year, Congress sought to eliminate this deduction for boat owners while keeping it in place for second home and recreational vehicle owners. BoatUS lobbied aggressively for a more equitable all-or-nothing approach when applying the deduction, and boaters did not get unfairly singled out.
Some boaters may be unaware of this potential tax benefit because not all lending institutions send borrowers an Internal Revenue Service form 1098 which reports the interest paid. Not receiving the form does not preclude taking the deduction. If a 1098 is not available, boaters should contact their lender for the amount of interest paid and should enter it on line 11 on Schedule A along with the lender’s tax ID number. If a form 1098 is sent, boaters should simply enter the amount on line 10 of Schedule A.
For those who fall under the Alternative Minimum Tax, most deductions are unavailable. Boaters are urged to contact a tax preparer or financial advisor for more information.
For more details on the mortgage deduction on boats that qualify, go to http://www.irs.gov/ and download Publication 936 or the Fact Sheets. For state tax deduction information, download Publication 60 which also includes state-by-state tax tables.