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Can You Claim The Interest on a Boat Loan on your Taxes?

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. 

Can You Claim The Interest on a Boat Loan on your Taxes?

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 boat has a designated sleeping area also called berth.
  • It has a separate area for the toilet also called head.
  • A separate place is set aside for cooking known as galley. 

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.

Boat as Collateral

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.

  • If a home equity loan is taken to buy a boat, the interest would not be tax deductible.
  • If a loan is taken to buy a boat with some other collateral such as jewelry or shares, again the interest paid cannot be deducted for tax purposes.

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.


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