Tax Time: Does An RV Qualify for Tax Deductions?
It’s tax season and that means Americans are dreading paying Uncle Sam. And we are looking for every little (and big) deduction that can help us save. So, how many RV tax deductions are there available?
And does it matter what kind of RV you have? Do you need an engine like a Class A or Class C or do Fifth Wheels and Travel Trailers to claim your RV on your taxes?
First, let’s get a little legal stuff out of the way: RV Tailgate Life does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors.
RV as a Home Mortgage Interest Deduction
If you financed your RV, you might be able to take the interest on your RV loan as mortgage interest deduction.
Let’s take a look at the rules, limitations, and other things you need to know to be able to claim your RV on your taxes as home mortgage interest.
Does the RV Qualify for Home Mortgage Interest Deduction?
First and foremost, the question will be whether your RV is a qualified home. Generally, this means that you need sleeping, cooking, and toilet facilities. Class A, B, C, Fifth Wheels and travel trailers should all qualify under these guidelines.
However, many vans may not qualify – in particular the toilet facilities may be missing. If you believe that your van qualifies, you should probably clearly document that you have each of these facilities by showing purchase records for the equipment and taking extensive photos each year.
You can take a home mortgage interest deduction on your main home and a second home.
If you have a fifth wheel or travel trailer, the interest on your tow vehicle will not be deductible as home mortgage interest. Neither will any towed vehicle for a Class A or Class C motorhome.
See Also: Plugging Your RV Into Home Electric
In order to qualify, the mortgage must be a secured debt. This means that the RV must “secure” the debt – if you fail to pay the loan, then the bank could repossess your RV to satisfy the outstanding amount on the loan.
If you financed through a major bank, your RV loan is probably secured debt. However, if you used a personal loan to obtain the money to buy the RV, it would not be a secured loan. In many (most?) states, you can tell an RV is security for a secured loan based on the Certificate of Title from the local tag agent. If the RV title has lien or security interest noted on it, then it would be a secured loan.
For more information on the home mortgage interest deduction, see the IRS’s Publication 936: Home Mortgage Interest Deduction (2017)
Other Limitations for RV Mortgage Interest Deductions
Million Dollar Limitation
For your main home and your second home combined, you can only take the deduction on the first $1 million of indebtedness. This does not mean $1 million in interest, but rather $1 million in principal.
If you exceed this limitation, you may have to reduce the interest you can deduct. At this level, please make sure to consult a tax professional because you probably have a lot more going on than just RV deductions.
More on this later, but starting with the 2018 tax year, the million dollar limitation drops to three-quarters of a million dollar limitation. It just doesn’t have the same ring to it, does it? In any case, your total mortgage principal on your first and second homes cannot exceed $750,000 before limitations apply.
Rental Use of RV
Did you know that you can take interest deduction on a second home even if you never used it during the year? So even if you just left it in storage the entire year and never spent one night in it, you can still use the interest deduction on your taxes.
However, if you rent your RV out to others, then you must use it as a home at least 14 days or more than 10% of the days it was rented out, whichever is more. Otherwise, you’ll lose the home mortgage interest deduction. But you might gain it back under rental or business property.
If you rent your RV out, you need to keep careful track of the number of nights you use the RV personally and the number of nights you rent it out. Keep a calendar or log to show the tax man if they ever come to audit your taxes.
Can You Use the Deduction?
Even if you have qualified interest on your RV, you may not be able to or want to use the interest deduction on your federal income taxes. To take advantage of the home mortgage interest deduction, you need to itemize your deductions on Schedule A of Form 1040.
According to the Tax Foundation, only about 30% of income tax filers itemize their deductions. Everyone else either takes the standard deduction or has zero or negative income and were not able to take advantage of any deductions.
For tax year 2017, the standard deduction is $12,700 for married couples filing jointly. If you are single or married filing separately, the standard deduction is $6,350.
In tax year 2018 (that’s the return you file by April 15, 2019) and beyond, the standard deductions are higher, much higher. The new standard deduction is $12,000 for singles and $24,000 for married couples filing jointly.
You would only want to itemize if your total deductions are more than the standard deductions. So if you combine all your deductions, like mortgage interest, charitable donations, student loan interest, and anything else on Schedule A, you need it to be more than $6,350 if you are single or $12,700 if you are married.
You May Not Get a 1098 Form
Because RVs are not houses in the traditional sense, it is very likely that you will not get a Form 1098 from your lender. It’s OK, you can still use the deduction. If you received a 1098, then you report this on Schedule A, line 10.
If you did not receive a 1098, then it will go on Line 11. You’ll need to send information about your lender, including their taxpayer identification number. If this was not provided to your statements, you may need to request their taxpayer identification number by sending them a Form W-9. If you don’t have this information, you could be subject to a $50 penalty for each failure to report the accurate information.
What About After the Trump Tax Bill?
The Tax Cuts and Jobs Act was a major tax reform bill passed in December 2017. A lot of tax consequences from that bill are still being figured out and regulations are still being written which will affect how RVs are treated under the tax code.
What we know so far:
New Standard Deduction
Like I mentioned above, under the new tax laws going into effect for 2018 (which means the tax return you will file in 2019), the 2018 standard deduction will go up to $24,000 for married couples and $12,000 for individuals.
That makes it even more unlikely that you will have mortgage interest to deduct.
If you are single, that means you need $1,000 in deductions monthly before you itemize. If your RV interest is your only deduction, that puts you in the range of a $250,000 finance amount at 5.25% interest rate on a 15 year loan. And a half a million dollar motorhome if you are married. That’s some high end diesel pushers right there!
And as you pay the loan down and pay less interest every year, you’ll drop below the standard deductions.
New Dollar Limitation on Home Mortgages
In 2017, the home mortgage interest deduction is for the first $1 million in indebtedness on the first and second homes. Under the new tax bill, this has been changed to $750,000.
There was some discussion on home equity loans and lines of credit and whether they would still qualify under the new limitation. On February 21, 2018, the IRS said that interest on these home equity loans would be deductible.
Fifth Wheels, Travel Trailers, and Towables
In December, the Recreational Vehicle Industry Association (RVIA) scared a lot of people regarding whether fifth wheels, travel trailers, and other towable RVs would be deductible under the new tax laws.
First, this may be much ado about nothing. Towable RVs are generally less expensive than motorized RVs because they don’t have an engine. (OK, not always, but often enough that it can be a general rule of thumb).
With the higher standard deductions, many people with towable RVs may not need the itemized deduction from the home mortgage interest deduction.
Second, I have reviewed the text of the final bill. I am having a hard time trying to make the leap that the RVIA does that towables are not included. In fact, the logic doesn’t even make sense.
According to the RVIA, first and second homes can include RVs, but only motorized ones. They state that the “new law only allows deduction for “any self-propelled vehicle designed for transporting persons or property on a public street, highway, or road,” which does not include towable RVs such as travel trailers and fifth wheels.”
Section 163 of the Internal Revenue Code is about the deductibility of interest in a variety of contexts. It’s a long and complicated section. But for this discussion, the relevant parts are subsections h and j.
Subsection h is the limits on home interest deduction. This is where the secured debt and qualified home requirements come from. Subsection j is on business interest.
The problem is that the language about self-propelled vehicles is in subsection j, specifically on floor plan financing interest. Floor plan financing is what the RV dealer uses when they buy the RVs that they will then sell to the public.
This limitation isn’t about you or me, this is about the RV dealership. Now, from an industry standpoint, it is something very important.
As the consumer though, it is not going to affect your taxes in 2018.
Bottom line, the interest on your RV loans for fifth wheels, travel trailers, and other towables is deductible on your tax return. Don’t let the internet rumors scare you.
However, because of the higher standard deductions, you may not need to itemize your deductions to minimize your tax liability and thus not need the RV loan interest.
See Also: 10 Things to Know About RV Tailgating
Local and State RV Tax Deductions
Ad Valorem Taxes
An ad valorem tax is based on the value of your property. Many people are familiar with ad valorem taxes on their cars, if their home state charges them. In many states, you pay the ad valorem tax when you get your car’s annual tags. These are typically deductible on Schedule A, like the home mortgage interest deduction. Any ad valorem taxes you pay on your motorhome would similarly be deductible.
Another value based tax that you paid is probably a sales or use tax when you bought your RV (unless you are in one of those states that doesn’t charge sales tax). So, if you are like me and bought in 2017, you may be able to take advantage of a sales tax deduction. This is another tax deduction that goes on Schedule A, so it’s available only if you itemize your taxes.
Limitation for 2018
Under the new tax bill, state and local tax deductions are capped at $10,000. So if you buy an RV in 2018 and plan on taking advantage of the sales tax deduction on your return due in 2019, you’ll need additional deductions to get over the standard deduction (state income tax deduction, mortgage interest deduction, charitable contributions, etc).
RV for Business Purposes
If you have an RV and are intending to use if for business purposes, good for you. But be careful about the personal use of the RV. Sometimes, even trivial personal use could make it a dwelling and disqualify the business purpose, as the Jacksons found out in this court case. If you want to use an RV for a purely business purpose, you are going to have to carefully document exactly how and why it is not personal use. You best consult a tax attorney on this one.
If you are only intending to deduct part of the use of the RV as a business expense, you may have some additional RV tax deductions available. Depending on the hows and the whys, you may be able to deduct some mileage on your RV. The standard rate for 2017 is $0.535 per mile and in 2018, it’s $0.545 per mile for the business miles driven.
You could also use actual expenses to include gas, oil, tires, repairs, tune-ups, insurance, and registration fees. Because RV maintenance is so expensive and we typically get really bad MPG, you may come out better this way. But again, you’ll need detailed logs of both the expenses and the personal vs. business use of the RV. You can only deduct the business portion of the expenses.
If you are going to use your RV in full or part in your business, you really should consult with a tax professional to see what will work best for your situation.
See Also: Must Have RV Safety Gear
Renting Your RV as a Business
One increasingly popular RV business for part-time RVers is to rent the RV out for others to use it. If you do this, you can gain additional business expenses and tax deductions, such as depreciation, commissions paid to the rental management company, advertising fees, insurance, cleaning and other maintenance.
For more on residential rental property, see the IRS’s Publication 527 on Residential Rental Property.
Don’t buy an RV for the tax deductions! RVs are almost always depreciating assets and expensive to maintain. Any potential tax benefits just are not going to be worth it. However, after you buy, do take advantage of all the tax deductions and benefits to make an RV more affordable. So you can take more trips and more tailgates!
RV Tailgate Life does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors.