Buying guide

Financing a yacht as your second home: the mortgage-interest deduction, the $750,000 limit, the 14-day charter rule, and what your lender files

Updated November 2, 2026 · Written by the House of Biz & Company Editorial Team · General information, not legal or financial advice

A yacht with a stateroom, a galley, and a head is more than a pleasure; in the eyes of the IRS it can be a home. For the owner who finances rather than pays cash, that one fact decides whether the loan’s interest is a deduction or simply a cost. Here is how the second-home rules work for a yacht, read from the Internal Revenue Code, the Treasury regulation, and the IRS’s own publications, with the 2026 limits and the charter-day test that can undo it.

Why a yacht can count as a home

For the buyer who finances a yacht rather than writing a single check, one quiet line of federal tax law matters more than any option on the build sheet. Interest on a personal loan is generally not deductible, but interest on a mortgage secured by your main home or one second home can be [1][2]. And to the IRS, a home is not only a house. A qualified home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities [1]. The Treasury regulation says the same thing in its own words: a residence generally includes a boat that contains sleeping space and toilet and cooking facilities, judged on all the facts and circumstances, including your good faith [3]. The Schedule A instructions repeat it: a home can be a boat if it provides basic living accommodations, including sleeping space, toilet, and cooking facilities [6].

So a cruiser with a galley, a head, and a berth can be your second home for this purpose; a day boat without them can’t. Here is what it takes for the interest on a yacht loan to qualify, where the limits sit in 2026, and the one decision, chartering, that can undo it.

1. The four conditions, read from IRS Publication 936

You can deduct home mortgage interest only if you file Form 1040 or 1040-SR and itemize on Schedule A, and the mortgage is a secured debt on a qualified home in which you have an ownership interest [1]. Both you and the lender must intend that the loan be repaid [1]. In practice that means four things for a yacht:

• It must be a home. Sleeping, cooking, and toilet facilities aboard [1][3][6].
• It must be your one chosen second home. You can have only one main home, and if you have more than one second home you can treat only one as the qualified second home in any year [1]. The Code says the same: one other residence you select for the year [2]. If you already deduct interest on a vacation house, the yacht and the house compete for that single slot.
• The loan must be secured by the yacht. The IRS defines a secured debt as one where you sign an instrument that makes your ownership in the home security for the debt, lets the home satisfy the debt on default, and is recorded or otherwise perfected under the law that applies [1][3]. A debt isn’t secured by your home if it rests only on a lien on your general assets [1]. An unsecured personal loan, or a margin loan against your portfolio, is not a mortgage on the yacht.
• The money must buy, build, or substantially improve it. For debt taken out after December 15, 2017, interest counts only on home acquisition debt, and interest on home-equity borrowing is deductible only if the funds were used to buy, build, or substantially improve the home [1].

2. The $750,000 line is shared with your house

For mortgages taken out after December 15, 2017, you can deduct interest on the first $750,000 of home acquisition debt ($375,000 if married filing separately); the older $1 million limit applies only to debt incurred before December 16, 2017 [1]. The Code applies the $750,000 figure to every taxable year beginning after December 31, 2017, with no end date in the current text [2]. The detail most owners miss: the limit applies to the combined mortgages on your main home and second home [1]. A large mortgage on the house can leave little or no room for the yacht.

When the combined balances exceed the limit, Publication 936’s Table 1 divides your qualified loan limit by the total average balance of the mortgages and applies that fraction to the interest you paid; the rest isn’t home mortgage interest [1].

A hypothetical, for illustration only. A married couple filing jointly carries a $600,000 mortgage on their house, taken out in 2021, and in 2026 finances a yacht with a $1,000,000 loan secured by the vessel. Assume, for simplicity, those are the average balances for the year and the two loans cost $96,000 in interest. Their qualified loan limit is $750,000; the combined average balance is $1,600,000; $750,000 ÷ $1,600,000 rounds to 0.469; so about $45,024 is deductible home mortgage interest and the rest is not [1]. Your own figures will differ; the worksheet is in Publication 936.

3. Chartering: the 14-day line that decides everything

Many owners hope a charter program will offset the cost of a yacht. The tax rules treat that choice seriously. If you don’t hold your second home out for rent or resale at any time during the year, you can treat it as a qualified home, and you don’t have to use it at all [1][2]. If you rent it out for part of the year, you must also use it as a home: more than 14 days, or more than 10% of the number of days it is rented at a fair rental, whichever is longer [1][4]. If you don’t, it is considered rental property and not a second home [1].

Section 280A, the rule behind that test, expressly lists a boat as a “dwelling unit” [4][5]. Three of its details matter on the water:

• Who counts as you. A day of personal use includes use by you, any co-owner, or a member of your family, use under a swap that lets you use another property, and use by anyone who doesn’t pay a fair rental for that day [4][5]. Lending the yacht to your brother for a week is personal use.
• Working days. A day you spend working substantially full time repairing and maintaining the property isn’t counted as personal use [5].
• Fewer than 15 charter days. If you use the dwelling as a residence and rent it for less than 15 days in the year, the rental income isn’t included in your gross income and no deduction is allowed because of the rental use [4][5].

When there is both personal and rental use, rental expenses are divided by days, and if the unit counts as your home your rental deduction may be limited [4][5]. That is a conversation for your tax adviser before the first charter is booked. The legal side of putting paying guests aboard (licensed captain, passenger limits, and the U.S.-build rules) is its own subject; see our guides to verifying a yacht charter’s captain and vessel and to buying a yacht abroad, including the charter limits.

4. Will itemizing even help? The 2026 numbers

The deduction is worth something only if you itemize. For 2026 the standard deduction is $32,200 for married couples filing jointly and $16,100 for single filers [9]. For many readers of this site, itemizing is a given; two other 2026 rules shape what it is worth:

• The new limit on itemized deductions. Starting with taxable years beginning after December 31, 2025, section 68 reduces an individual’s itemized deductions by 2/37 of the lesser of those deductions or the amount by which taxable income (with the deductions added back) exceeds the start of the 37% bracket [8]. For 2026 that bracket begins above $768,700 for joint filers and above $640,600 for single filers [9]. Ask your adviser to run the figures with this limit included.
• Sales tax on the yacht. If you elect to deduct state and local general sales taxes instead of income taxes, the Schedule A instructions let you add the sales tax paid on an aircraft or boat, but only if the tax rate was the same as the general sales tax rate [6]. That deduction sits inside the state and local tax limit: $40,400 for 2026, reduced by 30% of modified adjusted gross income over $505,000, but not below $10,000 [7]. At the incomes typical of yacht owners, the floor is often what applies; note too that the new car-loan interest deduction covers cars, SUVs, pickups, vans, and motorcycles assembled in the U.S., not boats [2].

5. What the lender files, and why it matters to the IRS

For the deduction, the loan must be secured by the yacht itself [1]. When the lender takes a mortgage on a documented yacht, federal law defines what makes it a preferred mortgage: one that covers the whole vessel, is filed in substantial compliance with 46 U.S.C. 31321, and covers a documented vessel or one with a documentation application on file [10]. If you are buying a documented yacht, our guide to Coast Guard documentation, title, and liens explains the filing and lien rules.

One honest caveat. The IRS secured-debt definition speaks of an instrument recorded or otherwise perfected under state or local law [1][3], while a documented vessel’s preferred mortgage is filed under federal law [10]. We found no IRS publication that addresses that wrinkle directly. Have your tax adviser confirm how your loan documents fit the definition before you count on the deduction.

Timing helps the buyer who pays cash first: a mortgage taken out within 90 days before or after you buy the home can be treated as used to buy it, up to the home’s cost plus substantial improvements [1]. And a home under construction, such as a new build, can be treated as a qualified home for up to 24 months, but only if it becomes your qualified home when it is ready for occupancy [1].

6. Illinois: the deduction stays federal

Illinois residents should set expectations. The Illinois Department of Revenue explains that your Illinois income begins with the adjusted gross income figured on your federal return, then adds and subtracts specific items [11]. That starting point is federal adjusted gross income from Form 1040 [11], and Schedule A deductions, mortgage interest included, are subtracted only after it on the federal return [6]. The 2025 IL-1040 instructions we read list no itemized deduction for mortgage interest, and they give the Illinois rate as 4.95 percent [11]. Use and sales tax on the purchase itself is a separate question; see our guide to buying a yacht in Florida, its tax cap, and the nonresident exemption.

Before you sign the loan: a checklist

1. Confirm the yacht has sleeping space, a galley (cooking facilities), and a head (toilet) [1][3].
2. Decide which property is your one qualified second home this year [1][2].
3. Add up the mortgages on your house and the yacht; the $750,000 limit is combined [1].
4. Make sure the loan is secured by the yacht itself, not by your general assets or portfolio [1].
5. If you plan to charter, count personal-use days carefully: more than 14 days or 10% of fair-rental days [1][4][5].
6. Keep the loan papers, the mortgage filing, and any Form 1098 interest statement the lender sends together [1].
7. Ask your adviser to run the section 68 limit and the state and local tax limit for 2026 [7][8].
8. Remember points on a second-home loan are deducted over the loan’s life [1].

Frequently asked questions

Sources

1. IRS Publication 936 (2025), Home Mortgage Interest Deduction (PDF)
2. 26 U.S.C. 163, Interest, including (h) qualified residence interest (Cornell LII)
3. eCFR: 26 CFR 1.163-10T, Qualified residence interest (temporary regulation)
4. 26 U.S.C. 280A, Disallowance of certain expenses in connection with business use of home, rental of vacation homes, etc. (Cornell LII)
5. IRS Publication 527 (2025), Residential Rental Property (Including Rental of Vacation Homes) (PDF)
6. IRS: 2025 Instructions for Schedule A (Form 1040), Itemized Deductions (PDF)
7. 26 U.S.C. 164, Taxes, including (b)(6)-(7) state and local tax limitation (Cornell LII)
8. 26 U.S.C. 68, Limitation on itemized deductions, as amended July 4, 2025 (Cornell LII)
9. IRS: Rev. Proc. 2025-32, 2026 inflation-adjusted items (section 4.01 tax rate tables and 4.14 standard deduction) (PDF)
10. 46 U.S.C. 31322, Preferred mortgages (Cornell LII)
11. Illinois Department of Revenue: 2025 Form IL-1040 Instructions (PDF)

Related guides

• Buying a pre-owned yacht: documentation, title, and liens
• Buying a yacht in Florida: the sales tax cap
• Chartering a yacht: verify the captain and vessel
• Buying a yacht abroad and bringing it home