In case of home mortgages, the government allows the borrower to deduct interest on the mortgage from his taxes. This is because U.S. law allows interest on a qualified residence to be deducted. There could be two such residences - the primary home and the second home. No such provision is allowed for other loans.
Interest on a boat loan is eligible for deduction when the boat is classified as a second home. The government allows the boat to be considered a second home if the following conditions are fulfilled:
The borrower of the boat loan need not actually live on the boat. If the above conditions are satisfied, he can claim the interest on a boat loan on his taxes.
When a loan is taken to buy a boat, the contract should specifically mention that the boat is the collateral. This means that in the event of default on loan payments, the lender can repossess the boat. If the contract does not mention this, then interest on the loan is not tax deductible even if the boat has all the features to qualify as a second home.
So if the boat has all the features required to qualify as a residence and the boat is the loan collateral, the boat owner’s interest payments will not be taxed.