April tax questions

I always take the 2nd home mortgage interest deduction. I thought somewhere along the way I read you had to spend a minimum of 14 nights in your second home per year to qualify. Perhaps that is not the case and anyhow I am not sure how it could ever be proved or disproved.

I do not deduct for entertainment expenses, I don't own a business, but I do occasionally entertain clients and or work contacts. It is not significant enough that I would want to risk the audit.
 
I am a lucky recipient of the alternative minimum tax and lose that deduction for the second home.. On a side note I learned today that someone filed using my social security number prior to me !

Tax time sucks! !
 
Dsybok said:
I always take the 2nd home mortgage interest deduction. I thought somewhere along the way I read you had to spend a minimum of 14 nights in your second home per year to qualify. Perhaps that is not the case and anyhow I am not sure how it could ever be proved or disproved.

I do not deduct for entertainment expenses, I don't own a business, but I do occasionally entertain clients and or work contacts. It is not significant enough that I would want to risk the audit.
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I'm not a tax expert, but I would think maintaining a log would be sufficient to prove 14 days. I definitely have enough marina receipts to cover the minimum days.
 
wesbstcroix said:
Yes/no.

http://www.irs.gov/instructions/i1098/ar02.html - Under mortgage defined section, 3rd paragraph. Specifies boat qualification.
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trflgrl said:
Thanks! Every penny counts, because we really like having A/C on those hot summer nights!
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From the above link "However, the borrower may be entitled to a deduction for qualified residence interest, such as may be the case for a boat, which has sleeping space and cooking and toilet facilities, that the borrower uses as a home."

My experience with an audit is that they will challenge whether or not you really use the boat as a home. Yes, it may have sleeping quarters, kitchen and a head but they will scrutinize how much time you use it as a home vs. just enjoying recreationally. Not saying they will win, but they will use it to intimidate you and if you're accountant is a wimp the IRS will get away with making you provide logs of how often you use the boat and how many time you used it as a home then they will try to adjust the deduction proportionately. Again, not saying that is right or even legal but if you're not savvy and they can get away with it, they will do it.

Point is, the minimal deduction is not worth it in the end. An audit is legalized extortion and they will use stupid things like this to beat you into submission. Trust me, they will spend 3 days arguing something like this until you say f'it and give up. I wasted 12 months of my life on an audit...not worth it.
 
Glad I don't have to rely on this group for tax advice. The law is clear. If it has sleeping, cooking and toilet facilities it qualifies as a second home and the mortgage interest is deductible. if your state has a personal property tax on boats that is also deductible. Keep in mind that you do not indicate on your tax return whether the interest was paid for a boat mortgage or a beach house mortgage.

The IRS now audits less than 1% of tax returns. Most of those "audits" are a letter requesting clarification. I got one a few years ago with a tax bill due for large 5 figures for underreporting capital gains on some stock sales. Turned out I made a mistake in how I reported the sales. After supplying the requested info I got a small refund.
Bottom line is take advantage of whatever tax deductions and credits are available. The U.S. Supreme Court has ruled that it is not illegal to exploit loopholes in the tax code to reduce tax burdens. It's very American.
 
JimT said:
Glad I don't have to rely on this group for tax advice. The law is clear. If it has sleeping, cooking and toilet facilities it qualifies as a second home and the mortgage interest is deductible. if your state has a personal property tax on boats that is also deductible. Keep in mind that you do not indicate on your tax return whether the interest was paid for a boat mortgage or a beach house mortgage.

The IRS now audits less than 1% of tax returns. Most of those "audits" are a letter requesting clarification. I got one a few years ago with a tax bill due for large 5 figures for underreporting capital gains on some stock sales. Turned out I made a mistake in how I reported the sales. After supplying the requested info I got a small refund.
Bottom line is take advantage of whatever tax deductions and credits are available. The U.S. Supreme Court has ruled that it is not illegal to exploit loopholes in the tax code to reduce tax burdens. It's very American.
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I agree...I wouldn't take tax advice from a boating forum either but I'm relating my experience from an actual audit....not a letter of clarification. I thought the same thing, only 1% of people get audited...what are the odds it will happen to me? Believe me, we don't have a kinder, gentler IRS. My experience is not from 10 years ago...this is a recent audit and it is f'ing painful. They will make you justify, and provide proof of, every single deduction down to the penny and they will dig long and deep for unreported income...even if it does not exist. From firsthand experience, they do not give $hit about you or your boat. You're just the unlucky bastard whose number was drawn. In fact, most IRS agents make less than what you're boat is worth and they resent that they have to audit people who make more than them. From an audit standpoint you are guilty...period. You have to prove you are innocent. Their mission and desire is to screw you as long and as hard as possible until you give up. I agree, the deduction for boat interest is legal and it's quite clear but that does not mean they won't challenge it.
 
Much of this also depends on where you live, according to my tax guy. For example, on lake Erie, we have a pretty short season, therefore its not worth the risk. If you live south and are a year-round boater, then maybe it would be worth it.
 
I'm actually surprised by the responses here. According to my accounting firm, the 2nd home deduction is a no-brainer. They have been through countless audits and haven't had any instances where a boat with a head, stove, and sleeping quarters didn't qualify as a 2nd home. And that's even in the Great Lakes region.

The meticulous records for T&E are where I think the time and effort required doesn't justify the small deduction. According to my accountant, every time you take a client/patient out on your boat, you have to document who was there, when they were there, what was discussed, why that business had to be conducted in that location (as opposed to your primary place of business), and then keep logs and receipts to prove everything. That's just not worth it to me.
 
Part of the original question is ‘who deducts the interest paid on their boat loan?’ In addition to the ‘yes or no’ answer there has been other commentary thrown in which mixes in several additional issues which if you use your boat as a second home for personal use only make no difference.

http://www.irs.gov/instructions/i1098/ar02.html
This link is informative but….it’s a link describing the requirements of a lender to report ‘mortgage interest’ paid. What’s the difference?….‘mortgage interest’ is paid on real property, boats are generally personal property. Given that, it’s very likely you might have to request from the lender of your boat loan the total of interest paid on this second home called a boat.

Do we have to live on them 14 days a year?….Again mixed subjects. This pertains to a second home that you use but is also rented. The rules on this are what helps differentiate a second home from a rental property. If it is a second home only and not rented you do not have to use it at all.

For those that fear audits….a boat is easily shown to be a second home. There’s nothing to fear from the IRS….unless you’re a business owner and you start with the T&E business expense. That’s like pouring blood in the water…it’s going to attract the sharks. They know T&E is a notorious area for creative accounting and poor record keeping and they’re going to dig.

This is the place to start then follow up with a good tax professional with questions. http://www.irs.gov/pub/irs-pdf/p936.pdf
 
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