Eight years ago, I watched an elderly couple spend two long days clearing a fallen tree from the driveway of their vacation cabin. The giant hemlock made for terrific firewood but it was not worth the concern and anxiety of trekking 90 minutes from the warmth of their downtown condominium on a cold, windy late-spring weekend.
“We probably should have sold this place and bought an RV,’” the man said. “I no longer want to worry about the next tree coming through the kitchen roof. Besides, we want to do some traveling.”
What the couple did not know at the time is that the RV – letters now commonly used rather than the spelled-out recreational vehicle – also can qualify for the mortgage interest deduction as a second home. Two years later, they sold the cabin, bought an RV and have been driving it ever since.
According to the Internal Revenue Service, all “second homes” must be used as security of the loan and must have basic sleeping, cooking and toilet accommodations if the taxpayer wants to claim the mortgage interest deduction. Virtually all RV types – motorhomes, van campers, travel trailers, truck campers and even some folding camping trailers – are equipped with these facilities.
RV salespeople say the mortgage interest deduction has bolstered sales and that many of the people who are buying RVs now probably would have purchased vacation cabins a few years ago. According to the Recreation Vehicle Industry Association, more people are spending longer periods of time on the road – time often spent in a cabin.
The RVIA also notes that 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. Some of the larger motorhomes easily crack the $350,000 plateau while some used, folding camp trailers can be purchased for less than $10,000.
Loan terms for new, large RVs typically range from 10-12 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 while 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 $170-$250 a day for motorhomes and from $100-$120 a day for truck campers and travel trailers. Individuals who rent their units typically charge less.