Boat buyers may have federal tax benefits available

Recreational boat buyers who pay state sales taxes on a boat purchase, or those who secured a bank loan to finance a boat, may have some tax deductions available when filing their federal income tax return.

The Sales Tax Deduction

For boat buyers who pay substantial state sales taxes on a new or used boat purchase may qualify for a federal tax benefit with a deduction for state sales taxes. Boaters must choose either the state sales tax deduction or state income tax deduction on their federal tax return -- you cannot take both.

In addition, to take the state sales tax deduction, the sales tax on a boat purchase must be applied at the same tax rate as the state's general sales tax. In order to claim the sales tax deduction, tax returns must be itemized.

The Boat Loan Deduction

For those who purchase a boat with a secured boat loan, mortgage interest paid on the loan may be deductible from your federal income taxes. Taxpayers may use the "second home" mortgage interest deduction for one primary home and one second home and must itemize deductions on their returns.

A boat is considered a second home for federal tax purposes if it has a galley, a head, and sleeping berth. Some boaters may be unaware of this potential tax benefit because not all lending institutions send borrowers an Internal Revenue Service form 1098 which reports the interest paid.

Not receiving the form does not preclude taking the deduction. If a 1098 is not available, boaters should contact their lender for the amount of interest paid along with the lender's tax ID number.

Boat buyers are urged to contact a tax preparer or financial advisor for more information.