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Apricot Tree · Nov 27, 2012, 05:02 PM

Hello there. I recently posted an article about giving away personal property. Here is the case again: a guy is selling his boat, and when they remove the boat from the water he sees that the keel has significant rot and needs to spend some money to fix it, he gets frustrated and gives the title of the boat to the buyer and says it is yours now. The boat has 12k blue book value.

I would like to know how you treat this? In my opinion, a boat is a personal use property which the remaining tax basis is not deductible if the boat is disposed. Disposition includes selling, exchange, trade, etc, and also giving away. So it is a disposition. And there is no tax deductions. It can't be an abandonment, since when you abandon a property, title doesn't change hands.

I would like to know you opinion on this, whether there is a deduction or there is not. A house, a car, or a boat are classified as personal use property and at disposition, you do not deduct losses. Also, is there a casualty involved with the rotten keel? Is this significant in this case?

AtlantaTaxExpert · Nov 27, 2012, 08:14 PM

As I stated earlier, if you gave the property to the "buyer" without getting anything, it is a gift.

Since the value of the boat is UNDER $13K, there are NO tax implications. You cannot deduct any loss in disposing of the property, and you did not donate it to a charity.

Apricot Tree · Nov 27, 2012, 09:04 PM

I was initially thinking that it is a gift, but my instructor says it is not. Either way, whether it is a gift or disposition of personal use property, you can't deduct your losses, in this case the 12k. I am so confused. You say it's a gift he says its not.

AtlantaTaxExpert · Nov 27, 2012, 10:07 PM

The guy GAVE the title to the buyer. That, in my book, is a GIFT. Ask your instructor to explain why it is NOT a gift; I am curious as to what he will say.

ebaines · Nov 28, 2012, 09:52 AM

I agree with ATE, but I'm curious as to why the boat is said to have $12K "book value." The only items with book value are ones that are depreciated for business reasons, not personal property. The determination of whether this is a gift or not is dependent on the fair market value (FMV) of the boat - not its book value - and the FMV is influenced by the condition of the rotten keel. Perhaps your instructor is saying that because of the rotten keel the FMV of the boat is $0, so the man really didn't give anything of value away. But like ATE, I'd like to hear his explanation as to why it's not a gift.