Recreational boat owners who paid state sales taxes on a boat purchase, or those who secured a bank loan to finance a boat, may have some tax deductions available when filing their 2008 federal income tax return.
Published: February, 2009
For boat owners who paid substantial state sales taxes on a new or used boat purchase last year, the Tax Extenders Act of 2008 offers a federal tax benefit with a deduction for state sales taxes. A taxpayer must choose either the state sales tax deduction or state income tax deduction on the 2008 federal tax return—not both. In order to claim the sales tax deduction, deductions must be itemized.
For those owners with a secured boat loan, mortgage interest paid on the loan may be deductible from federal income taxes. Taxpayers may use the second home mortgage interest deduction for one primary home and one second home and must itemize deductions on their returns. A boat is considered a second home for federal tax purposes if it has a galley, a head, and sleeping berth.
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.
Boaters are urged to contact a tax preparer or financial advisor for more information. More details on the mortgage deduction can be found at www.IRS.gov; download Publication 936 or the Fact Sheets. For state tax deduction information, download Publication 600, which also includes state-by-state tax tables.
