Did the Tax Cuts and Jobs Act Kill My Boat Deduction?

The deductions you may take for interest on your boat loan has changed somewhat since the Tax Cuts and Jobs Act (TCJA), but the deductions have not been eliminated. Below is a brief discussion from Maryland tax attorney, Steve Thienel, of some changes in the tax reform bill that impacts interest deductions for a boat. If you follow the current rules in the Tax Cuts and Jobs Act, you may still benefit from certain deductions.

Deducting Loan or Mortgage Interest for Your Boat

Tax-Deduction-Boat

The Tax Cuts and Jobs Act (TCJA) did not eliminate the ability to deduct mortgage interest on a principal residence and one other residence. Therefore, if the boat qualifies as a residence, you may continue to deduct mortgage interest, with some limitations.

First, the boat must qualify as a residence. Therefore, your boat must have a sleeping space, cooking facilities, and toilet facilities. If you rent your boat, you must use the boat for your own personal use in excess of 14 days or 10 percent of the total days you rent the boat for fair market value, whichever is greater.

For interest deductions on acquisition debts incurred before December 15, 2017, you can deduct interest on acquisition debts of up to $1,000,000 or $500,000 if married but filing separately.

Second, you must calculate the loan interest based on the new limitations for mortgage interest deductions under the TCJA. Interest you may deduct for your boat loan depends on when you purchased the boat.

For interest deductions on acquisition debts incurred before December 15, 2017, you can deduct interest on acquisition debts of up to $1,000,000 or $500,000 if married but filing separately. However, for acquisitions debts incurred after December 15, 2017, the TCJA limits the interest deductions for loans up to $750,000 or $375,000 if married but filing separately.

The limits apply to both loans. Therefore, if your home mortgage amount is greater than $750,000, you cannot deduct any interest for the boat loan. If your home mortgage amount is less than $750,000, you can deduct interest on the difference between $750,000 and the home mortgage loan. For example, if the mortgage loan is $500,000, you can deduct interest on up to $250,000 of the boat loan.

Do Not Forget the Sales Tax Deduction

If you purchased the boat during the current tax year, you might also benefit from a sales tax deduction. When itemizing your deductions on Schedule A, you can choose to deduct state and local sales tax instead of deducting state and local income taxes. You can add the sales tax for your boat to the standard sales tax figures you claim based on the IRS sales tax tables. However, the TCJA also restricts the sales tax that may be deducted to $10,000 per year for tax years 2018 through 2025.

Consult a Maryland Tax Attorney

The new tax rules in the TCJA can be confusing. However, the provisions in the TCJA related to mortgage interest, sales tax, and other deductions may be significant in reducing a person’s tax liability. A Maryland tax attorney can review your entire financial situation to determine the best methods for reducing tax liability by maximizing all deductions allowable under the TCJA. Contact Thienel Law today. Maryland tax attorney Steve Thienel is dedicated to assisting clients in Maryland, Virginia, and throughout the DC Metro area.