There is something about the feel of the wheel in your hand.
Maybe it’s the ability to control a multi-ton machine barreling down the highway; it could be the feeling of freedom that comes with being able to conquer the map without ever having to leave your home. Maybe it’s the excitement of knowing that just over the next hill is a new horizon with new sights to behold.
America’s fascination with the open road connects people all across our wonderful country. The ability to experience the natural beauty our nation has to offer– from Acadia National Park to the Grand Canyon, in the comfort of your home is an incredible blessing.
The adventurous existence that comes from a life on the road has a long list of benefits. It just so happens, one of those benefits has to do with to how much you owe Uncle Sam every year.
In this article, we’ll explore the tax benefits of RV ownership.
How to take advantage of the tax benefits of RV ownership
First, it’s important to note that in order to qualify for any tax benefits that come with RV ownership, you must perform an itemized deduction of your Schedule A Form 1040. If you choose to take the standard deduction, RV ownership has no impact on your tax filings.
Itemizing your deductions will provide you the opportunity to take advantage of the tax laws that allow you to deduct mortgage interest on a secured loan if your RV is either your primary or secondary home.
The mortgage interest of your primary and secondary residence is deductible for up to a combined $750,000 worth of mortgage principal. That is to say, that if I had a $500,000 loan on my home and a $250,000 loan on my RV, I could deduct the interest I pay on both of those properties.
While these figures may seem extreme to some, this limit is something to become more and more conscious of as home values continue to rise.
Try using an RV loan calculator to see how much interest will potentially be deductible from your loan.
Simply put, a secured loan is one in which the home itself is the collateral used in obtaining the loan. Obtaining the financing by using the property as collateral does not necessarily mean that you have a secured loan.
Keep in mind that a home equity loan used to fund the purchase of an RV will not be considered a secured loan. To take advantage of the tax benefits, you must obtain a separate loan that is secured by the RV itself.
Many unsecured loans are a by-product of taking out a personal loan. While this may be unusual in the purchase of a recreational vehicle, it is important to note that in the event you have an unsecured loan, your mortgage interest will not be tax deductible.
Bottom line, the loan is secured when the property and the purpose of the loan align. To get the tax benefits of RV ownership, your loan must be secured.
Primary or Secondary Residence
Designating a primary residence a rather straightforward. The answer to the question, ‘Which home do I reside in the majority of the year?’ sufficiently establishes that resolution. However, knowing whether or not you have the ability to list a secondary home in your tax filings is significantly less intuitive.
A motorhome may be listed as a secondary home even if it is not in use. You read that correctly, motorhomes not in use can still provide significant tax benefits as a secondary home provided they are not revenue-generating assets. The mortgage interest on an RV may be deducted so long as you are not using it as a business asset.
Renting your RV can be an excellent source of additional cash flow especially if you are unable/uninterested in using it for a period of time. You may not be on the road 365 days a year but that certainly doesn’t mean your RV has to sit idle. If you do choose to rent your RV for part of the year, keep in mind it still qualifies as a secondary residence if the lengthier of the following two scenarios is met:
- You, the owner, use the RV a minimum of 14 days out of the year
- You, the owner, use the RV to spend at least 10% of the number of days it was rented.
If, for example, you choose to rent the RV for 60 days, you would need to be the occupant of the RV for at least 14 days. If you rented the RV for 250 days you would need to occupy it for at least 25 days out of the year.
While it may seem like a small feature of the tax code, I shudder to think of how many people overpaid Uncle Sam simply because they erroneously viewed their RV as a rental property and not as a secondary residence.
Don’t Forget Sales Tax!
For every major purchase, sales tax deserves significant attention both from a cost and tax perspective. Just as with traditional homes, boats, airplanes and motor vehicles, the state sales tax paid in conjunction with the purchase of an RV is a deductible expense.
While a sales tax deduction only benefits you in years in which you purchase an RV, that one-year savings can have a significant impact on your tax liability. Don’t let this potential game-changer slip through the cracks!
To the adventurer, tax law discussions may feel like an exhausting journey of semantics and nuance. However, there is one rule I have found particularly helpful: know enough to maximize the benefits for the assets you own. Even if you find tax code drier than the Sahara, staying informed about how legislation impacts your filings will help you do more exploring, more wandering and more enjoying.
Being well-versed in the tax implications that come with RV ownership will not only benefit your wallet but will give you the financial freedom to journey further down that open road.
As a data analysis professional, a graduate of UMKC’s Bloch School of Management and a Certified Financial Education Instructor from the NFEC, Austin Logan has spent his career acquiring the tools to help others build a better relationship with their finances.