News & Articles

Navigate the Tax Rules for Boats and RVs

Posted on Mon, Apr 08, 2019

Will you be cruising the waters on your boat or camping out in your RV this year? Besides the pleasure you can enjoy through your personal property, you may also be eligible for tax breaks, if certain requirements are met.

Following is a brief rundown of four prime tax-saving opportunities.

1. Chartering activities. It's common for some boat owners to charter out their vessels for sightseeing or fishing excursions when they're not being used personally. In other words, this becomes a sideline business that allows you to recoup some of your expenses.

Notably, you can use expenses to offset the taxable income from chartering activities, including the cost of fuel, repairs, insurance, supplies, equipment, mooring and storage, and even fishing gear or binoculars. Plus, you're entitled to a generous depreciation allowance for the vessel itself.

Of course, your deductions are based on the percentage of boat use that's business-related. For example, if you charter out the boat 50% of the time, you can deduct 50% of the expenses.

Finally, be aware that you could run into troubled tax waters if the activity is treated as a hobby, rather than a business. Under the Tax Cuts and Jobs Act (TCJA), hobby expenses are generally disallowed for 2018-2025. Also, a business operation may trigger other tax consequences (for example, self-employment tax for a sole proprietor).

2. Mortgage interest. Typically, you can deduct mortgage interest on a qualified residence, like the main place where you live, but you're also entitled to interest deductions on a second home, like a vacation home. Surprisingly, the "residence" can also be a boat or a RV.

To qualify for this tax break under the tax code, the boat or RV must have sleeping, cooking and toilet facilities. So, if your boat has a galley, sleeping quarters and a head, you should be in the clear. You can't just barbecue on a boat's deck or throw a sleeping bag down below. Most RVs have the requisite facilities for this deduction.

Keep in mind that the TCJA imposes new limits on mortgage interest deductions for itemizers. It lowers the threshold for new acquisition debt from $1 million to $750,000, but prior loans are grandfathered. It also generally eliminates the deduction for home equity debt.

3. Charitable donations. Maybe you want to upgrade your boat or RV or your passion for boating or camping is waning. In any event, you might decide to donate the boat or vehicle to charity. Assuming certain requirements are met and you itemize deductions, this could provide a tax windfall.

As a general rule, you can deduct the current fair market value (FMV) of the boat or RV on the date of the donation. For instance, if you bought the RV for $80,000 years ago and it's now worth $50,000, you deduct $50,000 on your personal return.

But don't leave matters to chance. Obtain an appraisal from an independent professional. An appraisal is required anyway for property donations above $5,000.

Other special rules may come into play. For instance, the charity must use the boat or RV to further its tax-exempt function. Deal with a qualified charitable organization that is experienced with these types of donations.

4. Sales tax. Depending on your situation, you may be able to deduct the sales tax you pay when you purchase a boat or RV, although the rules have been complicated by the TCJA.

Previously, you could deduct all of your state and local property taxes, plus either your state and local income tax or sales tax. But now the total annual deduction for state and local tax (SALT) payments is limited to $10,000 for 2018-2025.

If you opt to write off sales tax instead of income tax as part of your annual SALT deduction, be aware that you can use either the actual tax paid, based on records, or an amount from a convenient IRS table. Generally, the actual expense method will produce a bigger deduction. Caveat: If you choose the table amount, you can add on sales tax from certain "big-ticket items" — like boats and vehicles!

To Summarize

These are just four ways you may benefit tax-wise from boats or RVs. At other times, you might use the property as transportation for hire or even claim home office deductions if you qualify under the strict letter of the law. Moral of the story: Be aware of all the tax-saving possibilities for these prized possessions.

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Tags: Sales Tax, Tax Credit, Charitable Donations, Mortgage

FAQs about Deducting Interest on Home Loans under the New Tax Law

Posted on Mon, May 07, 2018

The Tax Cuts and Jobs Act (TCJA) changes the rules for deducting interest on home loans. Most homeowners will be unaffected because favorable grandfather provisions will keep the prior-law rules for home acquisition debt in place for them.

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Tags: Deductions, Mortgage, Interest, Tax Cuts and Jobs Act (TCJA)

Report Warns Retirees about Potential Downsides of Reverse Mortgages

Posted on Fri, Sep 15, 2017

Reverse mortgages have been around for years. But they're getting a new spin: Some senior homeowners are tapping into their home equity to "bridge the gap" until the time they're ready to apply for Social Security benefits.

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Tags: Retirees, Social Security, Consumer Alert, Mortgage

Collect Tax-Free Profit From Selling Your Home

Posted on Fri, Apr 28, 2017

Whether the residential real estate market is up or down, there are always homeowners who want to — or have to — sell their homes. If you're a prospective seller making your property look like a model home in the hopes of raking in a nice profit, now is a good time to review how taxes will factor into the transaction. With the home sale gain exclusion tax break, the profit from selling your principal residence might be free from federal income taxes (and possibly state income taxes too). The rules are straightforward for most sellers.

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Tags: Federal Income Tax, Selling Your Home, Mortgage

Midyear Planning for Vacation Home Rentals with Significant Personal Use

Posted on Wed, Jun 22, 2016

Summer is the time for family vacations in the sun, sand and fresh air. It's also a good time to plan for how your vacation home will be used for the second half of the year.

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Tags: Tax, Vacation Home, mixed-use vacation property, Mortgage

Fit Finances for 2016

Posted on Mon, Dec 28, 2015

Have you achieved all of the goals you set for 2015? If some of your 2015 New Year's resolutions remain unresolved, don't get discouraged. There's no time like the present to cross a few items off your to-do list after the holidays. Doing so will ward off the post-holiday blues and set a positive tone for achieving the rest of your personal financial goals in 2016. Here are a few simple ideas.

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Tags: Health Insurance, Estate Planning, Life Insurance, college savings plan, Mortgage