Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Are there property taxes if I buy a condo on a ship?
"The short answer, as a practical matter, is no," said Michael Kosnitzky, partner at the Miami law firm of Pillsbury Winthrop Shaw Pittman.
"No practice has been established yet" concerning floating condos and property tax, says Charles Kolstad, partner at Los Angeles law firm Mitchell Silberberg & Knupp.
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Under U.S. law, vessels are subject to property tax based on their location or "hailing port," he said. But because residential cruise ships travel around the world and usually aren’t in U.S. waters or U.S. ports, it would be hard for a U.S. state property tax assessor "to successfully assert that the cruise ship’s hailing port is located in a U.S. state," Mr. Kolstad noted. "As a result, owners of condos on a cruise ship should generally not be subject to U.S. state property tax."
"These ships are chartered in tax havens like the Bahamas," Mr. Kosnitzky added. However, condo owners would be responsible for paying fees, such as for maintenance or ship operating expenses, similar to those of a traditional condominium or co-op unit, he said.
As with a primary residence, vacation home or rental property, mortgage interest on a condo aboard a ship is generally tax deductible, depending on how the condo is used and the number of days of personal and rental use, Mr. Kosnitzky said. If the condo is rented out, maintenance fees may be wholly or partially deductible, too.
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Under President Donald Trump’s proposed tax plan, "the ownership of a ship condo may become more advantageous because the proposal eliminates the benefits of most itemized deductions," Mr. Kosnitzky said. The plan "eliminates the benefits of most itemized deductions," including those for property taxes, he said. This would effectively "neutralize" the existing tax advantage for stationary real property condo and cooperative owners, he noted.
Nevertheless, Mr. Kolstad said, "prospective owners of a condo on a cruise ship [should] ask about the property and other tax consequences of owning a condo on that ship to avoid later unpleasant surprises."
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