| New boat loan, used boat loan or cash? Boat buyers | | | | collateral agreement (security agreement) indicating the |
| have many choices when it comes to paying for their | | | | boat as collateral, which is probably not something your |
| purchase, but do they always make the right one? | | | | broker would be prepared to provide. |
| Here are some tips on how you can determine if you | | | | ... More reasons for a new boat loan or used boat loan. |
| are making the wisest choice by paying cash for your | | | | Q: So does a home equity loan qualify...??? A: It could, |
| boat.... and why you may want to consider financing | | | | but NOT really. If a bank becomes aware that you are |
| instead. | | | | using home equity funds in a manner that does NOT |
| Q: Is my new boat loan or used boat loan tax | | | | coincide with the contract you signed with them... you |
| deductible? A: YES!!! Tax deductibility of interest on | | | | could be in for a rude awakening. |
| yacht loans Under IRC section 163 (h)(2) a taxpayer | | | | Home mortgage interest deduction is limited to interest |
| may deduct any qualified interest on a qualified | | | | paid on home equity loans up to $100,000. By using a |
| residence, which is defined as a principal residence and | | | | home equity loan, you may limit the amount of interest |
| one other residence owned by the taxpayer for the | | | | that is deductible, if your boat loan balance exceeds |
| purpose of deductibility for the tax year. IRC section | | | | $100,000. |
| 163(h)(3) defines qualified residence interest as any | | | | ... More reasons for a new boat loan or used boat loan. |
| interest which is paid or accrued during the tax year | | | | Q: Should I borrow against my stock portfolio? A: You |
| on acquisition or home equity indebtedness with | | | | could, but that IS NOT the best answer either. Doesn't |
| respect to any qualified residence of the taxpayer. | | | | a person invest in the stock market in order to get high |
| In accordance with IRC section 163(h)(4), a boat will be | | | | returns? If you're receiving high returns... or, at least, |
| considered a qualified residence if it is one of the two | | | | higher than the interest cost you would be paying, why |
| residences chosen by the taxpayer for purposes of | | | | would you take the money out? |
| deductibility in the tax year as long as it provides basic | | | | HERE'S ONE MORE REASON WHY YOU SHOULD |
| living accommodations such as sleeping space (berth), | | | | FINANCE! In the example below it's easy to see that |
| a toilet (head), and cooking facilities (galley). If the boat | | | | investment earnings can far exceed the cost of a |
| is chartered out, the taxpayer will have to use the boat | | | | new boat loan or used boat loan. In this particular case |
| for personal purposes for either more than 14 days or | | | | we are assuming a rate of 8.5% fixed for 20 years on |
| 10% of the number of days during the year the boat | | | | a loan of $100,000, requiring a monthly principal and |
| was actually rented, in accordance with IRC section | | | | interest payment of $867.82. |
| 280A(d)(1). | | | | The interest cost of this loan over an anticipated life of |
| Form 1098 is not necessary in order to receive the | | | | 60 months is $40,196.30. |
| qualified interest deduction. In accordance with IRS | | | | If you are in the 30% tax bracket, this interest expense |
| instructions for Schedule A, form 1040, if the taxpayer | | | | deduction will save you $12,058.91, effectively reducing |
| does not receive form 1098, deductible mortgage | | | | the cost of the loan to $28,137.39. |
| interest should be reported in line 11 instead of line 10 on | | | | This same $100,000, if invested earning 9%, would |
| Schedule A. | | | | grow to $137,703.68 (after tax) in the same time |
| ... More reasons for a new boat loan or used boat loan. | | | | period. Tax-free municipal bonds yielding 6% could |
| Q: Should I borrow against my home? A: NO...definitely | | | | earn $34,885.02 over 60 months. More aggressive |
| NOT! Borrowing against your unencumbered home | | | | investments could obviously make earnings even more |
| has limitations. Home mortgage interest deduction is | | | | attractive. |
| limited to interest paid on mortgage debt used to | | | | It's easy to see how financing your yacht could cost |
| purchase or improve a residence, or to refinance the | | | | you less. |
| remaining balance on a purchase or improvement. If | | | | Note: The above example was developed to help |
| the money isn't used for the home, the interest | | | | explain the advantages of marine financing and is not |
| expense does not qualify for the deduction.and... | | | | a guarantee of what is available in the market at any |
| A Second home mortgage interest deduction is limited | | | | particular time. Please consult with your financial |
| to interest paid on second homes that are secured by | | | | advisor about your own personal tax situation. |
| that second home. You would need to have a written | | | | |