Let’s get real, we don’t buy an RV for a tax write-off. They are a utility vehicle in some rare circumstances, but they are certainly by far a lifestyle choice and just what they are called: a “recreational” vehicle. But that doesn’t mean we can’t find a few tax perks.. IF WE DO IT RIGHT.
Now with that said, I’ve got good news and bad news, and as my mother taught me to ‘get your chores done first’, let’s get it over with. The regrettable news I need to share is that the RV no longer qualifies as a 2nd home for a mortgage interest deduction.
Personal deductions for an RV
Under the new Tax Cuts and Jobs Act passed in December of 2017, and in effect until 2025, the only deductible mortgage interest is that of your primary residence. Furthermore, it’s only interest on acquisition indebtedness. That means you can’t even deduct the interest for the RV if you use a HELOC or 2nd mortgage to pay it. Read an article by KKOS lawyer, Lee Chen, “How the New GOP Tax Law affects Owners and Investors of Real Estate” if you want the details on the new mortgage interest deduction rules.
What this boils down to, is that any interest on your RV is NOT going to be deductible on your personal tax return as an itemized deduction.
Now for the good news…your RV could potentially save you state income taxes if you can jump to the full-time ‘RVer’ status. Also, if you can qualify the RV as a business vehicle, the loan interest, and even your fuel, maintenance and the actual RV itself could be a write-off.
Full-Time “RVer” Strategies
If you have sold your ‘sticks and bricks’ home and hit the open road in your RV then you qualify as a full-time RVer!! The very thought of this leap of faith into a whole new lifestyle may strike fear in the heart of your spouse, but if you show him or her your potential tax and lifestyle savings, they might think twice.
First, when you sell your primary residence, it gives you the opportunity to claim a different domicile. This means moving your ‘residence’, your primary residence, to a new state…preferably a state with no state income tax. There are seven states wherein you could pay zero state income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington, Wyoming, and even limited amounts in New Hampshire and Tennessee).
This could make a huge impact on the bottom line of your tax return in a couple of ways. First, you obviously won’t be paying state income tax. But even if you stay where you are, you may not get the write-off you used to either. Under the new Tax Cuts and Jobs Act, state income tax (including property and personal taxes) are limited as a whole to $10,000. Thus, you may be paying more federal tax now under the new tax law, so you might want to think twice about paying that additional tax bill to your State governor.
Next, when you go full-time traveling the country, you just saved the costs of maintaining a sticks and bricks home. Maybe you can get out from under that suffocating mortgage and use your equity to buy a high-end RV. You also will be saving on property taxes, utilities, maintenance and maybe even onerous HOA fees. Many have expressed to me the lower costs of living the full-time RV lifestyle. One of my favorite websites with powerful info on this topic is www.workamper.com. I promised you’ll be amazed at the significant amount of resources on this website.
Now if you can find a reason to ‘travel’ for business from location to location with your RV, we might be even able to write-off some business mileage. But be careful trying to write-off the RV itself. Remember, that RV just became your primary residence and home…so I don’t think having a den upstairs or down the hall is going to happen for a home office.
RV plus Business = Deductions!!
To some of you, simply bringing up the idea of using your RV for business is preposterous! You bought your RV for ‘recreation’, for personal use, for fun. Well, don’t jump to conclusions, there might be a scenario where it could be a perfect fit.
Case Study – John and Mary (aliases of course), owned a craft business in northern California. They maintained a personal residence and the husband worked for the Sheriff’s Department. They also had purchased a 5th wheel RV that they used to drive around the western states in the spring picking up supplies for their product. They would also attend trade shows and visit boutiques and shops that they would ultimate wholesale their products to later in the year. (Ironically, many of the locations they visited were close to children and grandchildren’s residences- just sayin). Then they would take the summer in their garage building their craft/product enjoying their time together…and not as a hobby, but with a true intent to make some profit to supplement their retirement savings. In the Fall they would load up the RV with their product and drive around the same towns and cities (and national parks on occasion that just happened to be right in their route- ironically) and place their products for sale with the same boutiques and shops they visited in the spring. Of course, their children and grandchildren would be a big help delivering product and helping out an occasional retailer with any questions they had. Their RV was used 90% for business. They legitimately wrote off 90% of the purchase price, 90% of the fuel, repairs, licensing and maintenance…and ALL the while making a profit of over $30,000 a year after expenses. Not a bad deal with almost a fully deductible RV.
When it comes to writing off an RV as a business expense, there are lots of options. Think of hobbies that could actually produce significant income. Consider rental properties, personal services, fixing and flipping real estate, or even being an RV inspector for used RV sales. Learn more at the National Recreational Vehicle Inspector Association.
Major Opportunities for Part-time RVers
The part-time RV user may find a huge opportunity to write-off their RV if they own a small business. They won’t be selling their ‘sticks and bricks’ home, so the RV can easily become a business vehicle. The case study above is just one of many stories and examples of our clients every year at K&E CPAs that find a way to write-off their RV.
It’s true, you won’t be able to rid yourself of the cost of a personal residence, OR change your domicile to the land of ‘milk and honey’ (aka South Dakota), but all of the sudden that RV may become a huge write-off as you utilize its storage capacity and its ability to be an office or workshop on wheels for your business.
You might even be able to ‘rent’ the RV out while you aren’t using it. This is another major way to justify its expense and generate extra income. By turning it into a rental property, the ability to write-off the expense even got better. Think ‘RV meets VRBO’. One such business that helps owners rent their RVs is www.rvshare.com.
Bottom line, think outside of the box. Realize that the RV becomes a method or a tool for you to better live your American Dream. A way to make money, save money, get out of debt and live a better lifestyle. IF you feel your RV is a financial burden, rethink your ownership strategy. Do some study on the possibilities and you might be pleasantly surprised.
* To sign up for Mark’s weekly Free E-Newsletter and receive his Free E-Book “The Top 10 Best Tax Saving Secrets Everyone Should Know” visit www.markjkohler.com.
Mark J. Kohler is a CPA, Attorney, co-host of the Radio Show “Refresh Your Wealth” and author of the new book “The Business Owner’s Guide to Financial Freedom- What Wall Street isn’t Telling You” and, “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP.