The "home mortgage interest deduction" is one of the most popular tax deductions in the US and costs around $70 billion a year, by allowing taxpayers to deduct the interest they pay on up to $1 million in mortgage loans. Not as well known is the fact that the deduction is not limited to primary homes and the taxpayer does not have to even live in the home.
The "home mortgage interest deduction" must be for a "qualified residence," which must be:
1. the taxpayer's primary residence, and
2. one other residence of the taxpayer.
Note that the home mortgage interest deduction is not limited to the taxpayer's first home or main home. Treas. Reg. 1.163-10T(p)(3)(ii) explains the definition of "residence":
"Whether property is a residence
shall be determined based on all the facts and
circumstances, including the good faith of the taxpayer. A
residence generally includes a house, condominium, mobile
home, boat, or house trailer, that contains sleeping space
and toilet and cooking facilities."
Therefore, a yacht can be a residence, and interest on the yacht is deductible, as long as the yacht has a bed, a toilet, and cooking space, loosely defined. If the taxpayer has no other residence, interest on up to $1 million of yacht mortgage loans can be deducted.
The regulation then helpfully explains that "[a] residence does not
include personal property, such as furniture or a
television, that, in accordance with the applicable local
law, is not a fixture" So the yacht owner cannot deduct the credit card interest for buying that big screen TV in the yacht, unless the TV is built into yacht.
The qualified residence must be used "as a residence." However, if the
residence is not rented at any time during the taxable year,
it shall be considered to be used as a residence (even if nobody used it for anything).