What Boat Tax Deductions Can I Claim?

Boat owners may be eligible for certain tax deductions based on Internal Revenue Service (IRS) guidelines. The eligibility for these deductions hinges on how the vessel is used and documented throughout the year, primarily as a second home or for business purposes.

Qualifying Your Boat as a Second Home

A boat can be considered a qualified second home for tax purposes, which unlocks potential itemized deductions for mortgage interest and state and local taxes. To meet the IRS definition of a home, the vessel must have basic living accommodations. These include sleeping, cooking, and toilet facilities, such as a berth, a galley, and a head, which distinguish a boat from a purely recreational vehicle.

If you financed the purchase of your boat, the interest paid on the loan may be deductible as qualified residence interest. The loan must be secured by the boat itself to qualify. Under the Tax Cuts and Jobs Act (TCJA), the deduction is limited to the interest on up to $750,000 of total acquisition indebtedness for both your primary and second home combined ($375,000 if married filing separately). This debt must be used to buy, build, or substantially improve the qualified residence, and this limitation is scheduled to expire after 2025.

You may also be able to deduct property taxes paid on your boat, which fall under the state and local taxes (SALT) category. The TCJA capped the total SALT deduction, which includes property, income, and sales taxes, at $10,000 per household per year ($5,000 for married taxpayers filing separately). This cap is also scheduled to expire after 2025. If your combined state and local tax payments already exceed this limit, you will not receive an additional tax benefit for the property taxes paid on your boat.

Deducting Your Boat as a Business Asset

When a boat is used in a trade or business, a wider range of expenses may become deductible. The activity must be operated with a clear profit motive, such as a fishing charter, sightseeing tour, or rental business, to avoid being classified as a hobby by the IRS. The Tax Cuts and Jobs Act suspended the deduction for hobby-related expenses through 2025. This means that while you must still report any income from the hobby, you cannot deduct any of the associated costs.

If the boat qualifies as a business asset, you can deduct expenses that are considered “ordinary and necessary” for conducting that business. These costs can include:

• Fuel and oil
• Insurance
• Repairs and routine maintenance
• Crew salaries
• Docking or mooring fees

Personal use of the boat complicates these deductions and requires a meticulous separation of expenses.

For boats used for both business and personal enjoyment, known as mixed-use property, expenses must be allocated between the two. This requires keeping a detailed log of the boat’s usage throughout the year, tracking days or hours spent on business activities versus personal trips. The percentage of business use determines the portion of expenses that can be deducted. For example, if a log shows the boat was used 60% of the time for chartering and 40% for personal recreation, only 60% of the eligible operating costs can be claimed as business expenses.

The cost of the boat itself can also be recovered over time through depreciation. This allows the business to deduct a portion of the boat’s value each year it is in service. The depreciation deduction is calculated based only on the percentage of time the boat is used for business purposes.

Other Potential Boat-Related Deductions

Taxpayers who itemize can choose to deduct either their state and local income taxes or their state and local general sales taxes. For those who purchase a high-value item like a boat, deducting the actual sales tax paid may result in a larger deduction than using the standard sales tax tables provided by the IRS. This deduction is part of the overall $10,000 SALT cap.

Another potential deduction arises from the charitable donation of a boat to a qualified organization. If the charity uses the boat to further its tax-exempt purpose, you may be able to deduct the boat’s fair market value. However, if the charity sells the boat, the deduction is generally limited to the gross proceeds from the sale. For any donated property valued at more than $5,000, a qualified appraisal is required to substantiate the value claimed.

Information and Records Needed to Claim Deductions

To substantiate any boat-related deductions, you must maintain organized records. For those claiming the second home deduction, you will need Form 1098, Mortgage Interest Statement, from your lender. You will also need copies of the loan agreement to prove the boat secures the debt and records of any property tax payments.

If you are deducting your boat as a business asset, the documentation requirements are more extensive. A detailed usage log is needed, contemporaneously tracking dates, hours, purpose of each trip, and miles traveled for both business and personal use. You must also keep receipts for all expenses you intend to deduct, including fuel, insurance policies, repair invoices, and mooring fee statements.

For the sales tax deduction, the boat’s bill of sale is needed to show the amount of sales tax paid. When donating a boat, you must obtain a written acknowledgment from the charity. If the charity sells the boat, they will provide Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes. A formal qualified appraisal report is also necessary for donations valued over $5,000.

How to Report Boat Deductions on Your Tax Return

The method for reporting boat deductions on your federal tax return depends on the nature of the deduction. Deductions related to using your boat as a second home are reported on Schedule A (Form 1040), Itemized Deductions. Qualified mortgage interest from Form 1098 is entered on line 8a, while deductible state and local property taxes are included on line 5a, subject to the SALT cap.

For a boat used in a trade or business, all income and expenses are reported on Schedule C (Form 1040), Profit or Loss from Business. Gross receipts from business activities are reported as income, and all ordinary and necessary expenses are detailed in Part II of the form. Depreciation for the business-use portion of the boat is calculated and reported on Form 4562, Depreciation and Amortization.

The sales tax deduction, if chosen instead of the state income tax deduction, is reported on Schedule A, line 5a. If you are claiming a deduction for the charitable donation of a boat, this is also reported on Schedule A. For noncash contributions over $500, you must also complete and attach Form 8283, Noncash Charitable Contributions, to your tax return.