Boat Taxes & Potential Deductions
Taxes are inevitable, so the idea of boating and tax deductions going together are a pleasant concept. Under certain circumstances there are ways to legally write off some of the costs of boating. Here we go over 6 potential write offs for your boat:
Section 179
Home Office Deduction
Entertainment Expense
Boat as a Second Home Tax Deduction
Charter Deductions
Boat Donation
Section 179
This allows a business entity a one time purchase price deduction for business expenses related to depreciable assets over 6,000lbs if used for more than 50% business purposes, including boats.
Home Office Deduction
If you work from your boat and it is used as a part time office you may qualify for the home office deduction. You will need to prove the activities on your boat office must be business related and occupants must have business discussions while aboard. A record log of meeting date, minutes and attendees will be required.
Entertainment Expense
If you use your boat to entertain clients, you may qualify for a deduction as an entertainment expense. You’ll need to have a reasonable expectation of gaining future revenue as a result of the outing, during which you'll need to conduct some business discussions. Similar to the home office deduction, you'll need thorough documentation.
Boat as a Second Home Tax Deduction
It is possible for a boat to qualify as a first or second home as long as it has sleeping accommodations (berth), a bathroom (head) and a galley (kitchen). You can take a home mortgage interest deduction if your boat is financed. You’ll need to do itemized taxes and file an IRS Form 1098 to deduct the interest.
Charter Deductions
If you can charter your vessel by acting as a captain to paying passengers you may be able to deduct some costs of ownership (slip rental, fuel, maintenance, crew, etc), however there are stipulations. You’ll need a U.S. Coast Guard license to take out six or more paying passengers and you may need to increase your boat insurance if you use it for commercial purposes. You’ll also need to show a profit at least three out of every five and you can only deduct the percentage of costs that was for charters, not personal use.
Boat Donation
When it comes to getting rid of your boat you can donate to a non-profit charity instead of selling it. In this case, you can deduct its “fair market value” for which you'll need an appraisal in the form of a professional survey. However, if the charity sells your boat you can only claim a deduction equal to the selling price, not your initial appraisal.
Taxes are fluid and the laws are constantly changing, not only by jurisdiction but also over time. It is always important to keep thorough records, especially for complex matters that involve significant amounts of money. For all of these consult your CPA or a maritime attorney because boat deductions can tend to raise red flags. Wayzata Marine does not endorse any of the above activities, this is merely an informational article, not business or legal advice.
Frequently Asked Questions
How much is sales tax?
In Minnesota our customers at Wayzata Marine in Hennepin county pay a total of 7.525% sales tax on the purchase price of the boat and 6.5% sales tax on the purchase price of the trailer.
Do I have to pay sales tax?
Yes, sales tax is mandatory in Minnesota. The only states that have no general statewide sales tax are: Alaska, Delaware, Montana, New Hampshire and Oregon. If you purchase a boat in these states you must also use them there. If you bring a boat back to Minnesota or any other state that has sales tax you will need pay the sales tax once you register it because it is being used there.
Does Coast Guard Documentation allow me to not pay sales tax?
No, you still need to pay sales tax on a new boat no matter what.