Second-home deduction awaits recreational vehicle owners

A 50-something man climbed down from behind the wheel of the massive recreational vehicle in the parking lot of a county park.

“It’s my second home,” the man said to nobody in particular. “Took early retirement. And, I needed a deduction.’’

In the world of housing and shelter, the recreational vehicle also can qualify for the mortgage interest deduction as a second home.

According to the IRS, all “second homes” must be used as security of the loan and must have basic sleeping, cooking and toilet accommodations. Virtually all RV types – motorhomes, van campers, travel trailers, truck campers and even some folding camping trailers – are so equipped.

In a capsule, an RV combines transportation and temporary living quarters for travel, recreation and camping. The two main categories are motor homes (motorized) and towables (towed behind the family car, van or pickup). Types of towable RVs are folding camping trailers, truck campers, conventional travel trailers and fifth-wheel travel trailers.

And there’s a reason we see more of them on summer roadways. There are more than 12,000 RV-related businesses in the U.S. with combined annual revenues of more than $37.5 billion. The RV industry employs more than a quarter-million Americans with a payroll of about $4.9 billion.

More than 11 percent of U.S. households headed by people age 35 to 54 own an RV, exceeding the 9.3 percent ownership rates of those 55 and over. The 35-to-54 age group posted the largest gains in a 2011 study by the University of Michigan.

The Recreation Vehicle Industry Association reports that RV owners on average are younger than five years ago. Today’s typical owner is 48 and married with an annual household income of $62,000 – higher than the median for all households, according to the Michigan study. RV owners are likely to own their homes and spend disposable income on traveling – an average of three weeks annually, RVIA research shows.

In addition, lenders are viewing RV buyers as reliable borrowers. Fewer than 2 percent of all RV loans are delinquent, the RVIA says, sparking lenders to extend RV loan terms and thus making monthly payments more affordable.

The prices for RVs are all over the board. New RVs typically cost $5,000 to $22,000 for folding camping trailers; $6,000 to $55,000 for truck campers; $8,000 to $95,000 for conventional travel trailers; $43,000 to $200,000 for Type C motor homes; and $60,000 to $500,000 for Type A motor homes.

Loan terms for new, large RVs typically range from 10 to 12 years, with some lenders willing to extend to 20 years. While many dealers offer their own in-house financing, RV loans can be obtained from credit unions, banks, savings and loans and finance companies. According to the RVIA, a majority of RV lenders require less than a 20 percent down payment and some are willing to accept less than 10 percent down.

Mortgage interest is deductible on federal income tax on two homes. (Some analysts call the guideline the “Congressmen’s rule” because lawmakers need residences in their home states and the nation’s capital). Although mortgage interest is not a dollar-for-dollar tax credit, it does reduce taxable income.

The IRS publishes two booklets that contain helpful information regarding the tax deductibility of loan interest. Copies of “Publication 936 – Home Interest Deduction” and “Publication 523 – Selling Your Home” are available by calling the IRS at (800) 829-3676.

And there can be an investment side to an RV purchase. Depending upon time of year and area, dealers and rental outlets generally charge between $100 and $2,500 a day for motor homes and from $80 to $150 a day for truck campers and travel trailers. Individuals who rent their units personally typically charge less.

According to Richard Morse, attorney and tax-deferred exchange specialist, RVs can be exchanged much like rental homes in a Section 1031 exchange. However, rental homes are real property and recreational vehicles are personal property.

“You certainly can do personal property exchanges,” Morse said. “The timelines are the same, but personal property exchanges are much more stringent. You must trade an RV for an RV, a truck for a truck.”