You may not have bought your boat or RV for the tax benefits, but that does not mean there are not some. Interest expense, property taxes and sales tax deductions are available for owners as itemized deductions on Schedule A. Boat and RV owners that want to make some extra income from their vehicles can also write off a portion of vehicle expenses.
Mortgage Interest and Loan Points
The IRS allows homeowners to deduct not one, but two homes at any given time. A variety of vehicles –boats, motorhomes, trailers, fifth wheel and campers—meet the IRS definition of a second home. As long as the vehicle has sleeping, cooking and toilet facilities, it qualifies. If your vehicle passes these tests and you took out a loan to finance your purchase, any interest paid and points purchased are deductible.
Normally, homeowners receive a Form 1098 from their lender that details the exact amount of deductible payments they made. For your RV or boat, you may need to contact your lender proactively to get a 1098. If they don’t send one, you can still deduct the payments. Just ask for an amortization table of your payments and calculate your total interest paid over the year. Any points you purchased at the onset of the loan are also deductible. Know that the IRS only allows you to deduct interest on debt up to $1 million.
Some states charge a property tax for boats and RVs. This property tax, just like the property tax you pay on cars, is deductible in the personal property tax section of Schedule A. Unfortunately, other components of registration fees typically can’t be written off. Only taxes assessed based on the value of your vehicle qualify.
The IRS allows taxpayers to deduct the higher of state and foreign income taxes paid or general sales tax paid. If you live in a state that doesn’t levy an income tax, the sales tax you paid for your vehicle can be a valuable deduction. The IRS understands that it’s not feasible for most taxpayers to calculate the actual sales tax paid over the year so it developed an estimated deduction calculator. You can include the sales tax you paid on specific items –like RVs and boats—on top of this estimation to get a larger deduction.
Boats and RV owners may be interested in running a side business to recoup some of their vehicle costs. For example, boat owners could offer cruises around the bay or RV owners may want to rent out their vehicle to campers. If you start a side business with your vehicle, you can write off a lot costs as business expenses. As a rule of thumb, you can write off direct costs related to the business activity –for example, the cost of gas while running a cruise—and a portion of overhead costs. So, if you use your vehicle 50 percent of the time for business and 50 percent for profit, you can write off half of repairs, maintenance, and registration fees.