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Boating Deductions Clients Can Reel In

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Unfortunately, the Tax Cuts and Jobs Act (TCJA) officially sunk entertainment deductions for boat-related expenses, effective for 2018 and thereafter. But boat-owning clients may still be able to reel in deductions for certain expenses on their personal tax returns. Tax expert Ken Berry explains in his latest Summer of Deductions article.

Jul 12th 2021
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There are currently at least three ways your clients can write off costs associated with boats this year, assuming they itemized deductions.

1. Mortgage Interest

Generally, you’re allowed to deduct qualified mortgage interest paid on a principal residence and one other home, like a vacation home. Under the TCJA, deductions are limited to interest on up to $750,000 of acquisition debt (down from $1 million) for 2018 through 2025 (Prior loans may be grandfathered).

Be aware that the IRS has a generous interpretation of what constitutes a “home” for this purpose. It includes “a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.”

Therefore, if your client’s boat has a galley, sleeping quarters and a head, you should qualify. But you can’t deduct mortgage interest by just throwing a sleeping bag or cot on the deck.

2. Sales Tax

The TCJA strictly limits annual deductions for state and local tax (SALT) payments to $10,000 for 2018 through 2025. This includes both (a) state property taxes and (b) state income or sales taxes. If your client buys a boat this year, it may boost the sales tax component of the SALT deduction.

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