Tax Implications of Hurricane Damage to Your Boat by Scott H. Novak

We are a boating community and we are heartbroken about our local marinas and the boaters whose boats have been lost or severely damaged because of Hurricane Sandy. Where your boat was, on what angle to the wind and how high your jack stands were played a large role in how you faired in the storm. There is a tremendous amount of loss out there. Is there anything that you can do with the portion of the loss not covered by insurance?

This article will address the tax deductibility of those losses on your federal income tax return. The rules are a bit complicated, but the income tax form, Form 4684, is relatively painless to work with. These rules apply to pleasure boats only. The rules are different if your boat was used as a trade or business. The first item to note is that the loss is taken under Miscellaneous Itemized Deductions on your Schedule A. Why does that matter? Because all of the items in this section must exceed 2% of the adjusted gross income (AGI) on your tax return to be deductible. So this is the year to include your tax preparation fees, safe deposit box fee, union dues and any other item that can be deducted on this part of the form.

The next rule is that you have to reduce the loss by $100. If your loss is $1,000, you must start with a $900 loss. All of the losses from a single event are added together for the $100 rule. So, if your boat was a total loss, including the equipment and the dinghy, all of those items are added together and the $100 reduction is taken once. Here’s the difficult rule…

 

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