28 Apr IS A HOUSEBOAT A HOME? lAWS ADRIFT – WILL PROTECTION SINK?
Laws vary on whether a houseboat is a home, if it is protected from creditors or if there can even be any tax benefits. Medicaid, bankruptcy and the Internal Revenue Code all address treatment of houseboats.
MEDICAID TREATMENT OF HOUSEBOATS AS HOME:
Under long-term care Medicaid rules, “a home is a structure in which the person or the person’s spouse lives (including mobile homes, houseboats and motor homes), other buildings and all adjacent land”. This is important since a home is excluded as a resource (long-term care Medicaid is means-tested and often you need limited assets to get government assistance to pay for care such as nursing home and drug costs) for long-term care Medicaid eligibility (no matter what the value is if married or if the equity value is less than $730,000 in year 2025 if the applicant is single) if the applicant intends to return home. The rules further clarify that a home can be the principal place of residence (you can only have one home excluded) if it is real or personal property, fixed or mobile, and located on land or water. The address the applicant uses on voter registration, federal benefits or federal tax returns or on a property tax statement are used to determine the principal residence if the applicant has more than one residence.
However, although a houseboat can be excluded as a resource, it could be subject to Medicaid estate recovery. Under Texas Medicaid estate recovery laws, the state has a right to make a claim for benefits advanced if the home passes by will or intestacy (although there are some exceptions). One of the exceptions to Medicaid estate recovery on a homestead is the use of either a Ladybird (enhanced life estate) deed or a Transfer on Death deed. However, deeds are only applicable when one owns land. Beneficiary designations also avoid probate and intestacy which would result in a unsuccessful claim for Medicaid estate recovery by the state. However, there is no present Texas law for a beneficiary designation of a houseboat (unlike cars, life insurance policies, retirement accounts, etc.).
So, how could the equity in the houseboat used as a principal residence be protected from Medicaid estate recovery? If the Medicaid recipient sells his or her home, and a replacement home is purchased within three full months following the month of receipt, it is excluded even if the individual has not physically occupied the new home. So, if the Medicaid recipient later sells his or her houseboat and purchases a new homestead (attached to land) and then signs a Ladybird deed, then the home could be protected from a state claim.
HOUSEBOAT NOT PROTECTED FROM SEIZURE UNDER BANKRUPTCY:
Texas addressed the question on homestead protection of a houseboat under bankruptcy laws in the case of Norris vs. Thomas. The conclusion of the court was that an object cannot be an improvement to real property entitled to homestead protections unless it is annexed to the real property with the intent that it be a permanent addition to the realty. In this case, Norris used his 68-foot yacht as his primary residence and otherwise fulfilled all of the requirements of a homestead except being attached to land. The 4 bedroom boat with a galley received phone service, water and electricity through connections to a dock in Corpus Christi. Under the Texas Constitution, a homestead, not in a town or city, shall consist of not more than two hundred acres of land…with improvements thereon, the homestead in a city, town or village, shall consist of lot or contiguous lots not amounting to more than 10 acres of land, together with any improvements on the land; provided that the homestead shall be used for the purposes of a home.
The Texas Property Code repeats the language of the Texas Constitution on the acreage of land (urban or rural) together with improvements thereon. It just goes into further explanation as to whether the homestead is urban or rural by determining if the municipality provides services such as electricity, water, policy protection, etc.
The court concluded a residence attains homestead status is based on whether the attachment to land is sufficient to make the personal property a permanent part of realty (i.e., mobile home attached to land and has utilities that can be connected). The Texas Tax Code specifically includes mobile homes in its definition of a residence homestead. The court concluded that even though a houseboat can be a homestead under Texas Medicaid laws, the Texas Constitution made reference to “land” and improvements “thereon” resulting in a houseboat being personal property and subject to seizure. So, a houseboat can be a home, but not a homestead which would protect it from seizure by creditors. In order to qualify as a homestead, a resident must rest on the land and have a requisite decree of physical permanency, immobility and attachment to realty.
TAX TREATMENT:
A boat can qualify as a first or second home as long as it has sleeping accommodations, a bathroom and a kitchen (galley). Norris’ yacht could have qualified as his home. He could have taken mortgage interest as a deduction if his boat was financed. He could also possibly have a home office deduction if he worked from his boat and itemized. Also, if he entertained clients on his boat, he may have qualified for an entertainment expense deduction. Furthermore, since it is not attached to land, there is no property taxes. However, Texas imposes a sales and use tax when the boat is purchased.
Treatment of a houseboat as a home differs under the various laws. It is important to know your goals before that ship has sailed.
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