Making Your Boat More Tax Efficient: Advice For Owners

Around 18.3% percent of Americans spend more than $1,000 on boating per year, and retailers sell more than half a million new boats annually. With significant sums of money exchanging hands, boat owners may wonder if there are more tax-efficient ways to manage this investment. If you're keen to understand how you can save money on boat ownership, consider the following possible tax advantages.

Second home deductions

In the United States, the IRS allows people to claim various tax deductions if they own and use a second home. However, some people may not realize that these rules can apply to recreational boats. Clearly, these deductions and benefits are only available if you can genuinely live aboard the craft, and the IRS manages strict rules about the sort of boats this will apply to.

To deduct the cost of interest on a mortgage on a boat, you don't need to permanently live on the craft. However, the boat must have a sleeping platform, a toilet and cooking facilities. What's more, you must live on the boat for at least 14 days per year. As long as you can meet these criteria, you can deduct the cost of mortgage interest plus any early payment penalties from your tax return.

Rental income and rental expenses

Rental income from your boat could boost your income and overall tax efficiency, especially if you only rent out the craft for a few days each year.

The IRS only wants to know about rental income from a second home (in this case the boat) if you rent out the property for more than 14 days a year. You don't have to declare any rental income you receive if the total rented period does not exceed 14 days, irrespective of how much you charge. As such, for up to 7 weekends a year, you can charge other people to use your boat, and you won't need to pay tax on the income.

If you rent out the craft for more than 14 days, you will need to report the income to the IRS. However, in this case other expenses are tax deductible. Eligible expenses include property tax, insurance premiums, utilities, and up to 50 percent of the value of depreciation. As such, these deductions could help cut the amount of tax you pay.

Business activities

Although you may buy a boat for recreational purposes, it's also possible that you will use the craft for some business activities. For example, you may sometimes host or entertain clients on board the ship.

The IRS pays close attention to claims for entertainment and hospitality, so you will need to document the details of this usage. What's more, the IRS will expect you to define the purpose of the entertainment and show that you reasonably expected to derive an income or business benefit by using the boat in this way.

You may decide to use the boat for ongoing business purposes. For example, you may decide to run chartered fishing trips or tours at weekends. In these situations, you can deduct other costs (such as mooring or storage fees) as business expenses, but, once again, the IRS will scrutinize your tax returns.

You'll need to prove to the IRS that the business can make a profit and run as a proper enterprise. As such, you'd need to adhere to all specific regulations that any commercial skipper would need. For example, you'll need a license from the U.S. Coast Guard.

What's more, you can only claim expenses for the percentage of the time that you actually use the boat for business purposes. For example, you will probably pay a monthly mooring fee. If you only charter the boat for business for 4 days each month, you can only claim a relevant portion of the mooring fee as a deductible expense.

There are various ways that recreational boat owners can make their property more tax efficient. Talk to a tax advisor or visit websites like for more details about the different deductions you can make.