I've been actively searching for a house on an island in the Chesapeake that can only be accessed by boat (no bridges or ferries) since 2015. I bought a boat in 2015 in order to conduct the search and later use it for travel for maintenance and upkeep of the property. The boat incurred an acquisition expense, taxes, maintenance fees, and fuel in 2015, 2016, and 2017. We finally purchased the rental home in 2017, but we didn't rent it in 2017 due to the condition of the house and are still doing major renovations. I live in Maryland but have a rental in Florida.
1) Can I add boat expenses and depreciation on the vessel since it was used solely for travel to a rental property?
2) Would it be better for me to claim the home as a second home or rental property in 2017 since it wasn't rented. I stayed there a couple days since purchase, but only while doing renovation work. If I should claim it as a second home, do I still add all the previously mentioned boat expenses to my cost basis for when I convert it to a rental in 2018?
Thanks in advance!
All of your expenses can be added to your basis for use in the depreciation which can start once the property is put in service. I would not want to have to argue about a boat but maybe you need the expenses that bad. I make my tax choices by thinking about going into a room with the irs agent who has set up an appointment. My first mentor gave me some really bad advise about how he would just have a box of unsorted receipts to show them. I have never been there (the irs room) but knowing about Bills limp ---- idea has made me think I want to have the right answer if someone asks.
Thanks, Robert. I knew the sniff test would come up at some point, but it's hard to not argue that a boat is necessary to travel when that is absolutely the only way to get there. I only ask because this island is one of only a handful of communities anywhere in the US not accessible by car, so the answer is virtually un-Google-able. It's a 90-minute boat ride from the west and a 45-minute ride from the east. I would love to take an IRS agent to a room on the island by boat and ask him to find a way to get back without it, lol. Though I think the IRS has historically written off boats as entertainment, I feel like it should be treated the same as driving my car from MD to FL to check on my other rental. So far, there's been over $3k just in maintenance and fuel in boat travel per year for acquisition and renovation costs.
Seems like you can do it. It's a legit expense, assuming you actually bought a place that requires a boat. You just have to be prepared to answer if the IRS comes knocking, that's all. Worst case you have to retract it, after wasting the time dealing with them.