By Russ and Tiña De Maris
As Washington lawmakers battle it out over a tax plan, everyone wonders who the winners – and losers – will be. We don’t have a working crystal ball, but published information about the House tax bill, which has already passed, could be of interest to RV buyers – and present-day owners who’ve floated loans to finance their rigs.
If the House bill were to become law without significant changes, the federal mortgage interest deduction would vanish. Under current law, most RVs constitute a “second home,” in terms of the ability to deduct the amount of interest paid on the loan, lowering one’s effective taxable income. That’s because by definition, an RV constitutes a second home, provided it has a kitchen, bathroom and at least one bed.
If you presently itemize your taxes, you can take that interest deduction. If the House bill becomes law, you can’t. But does that necessarily mean you’ll lose out? The devil, as they say, is in the details, and the biggest devil for figuring out winners and losers is in the use of the standard deduction. For the most recently available information, that is taxes filed for 2013, most Americans took the standard deduction, rather than itemizing deductions. But the bigger the income, the more chose to itemize. Here’s the break out:
Income                Percent who itemized
Less than 25,000Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 6.0
25,000 to 50,000Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 21.4
50,000 to 75,000Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 41.7
75,000 to 100,000Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 58.3
100,000 to 200,000Â Â Â Â Â Â Â Â Â Â Â Â Â Â 78.8
Over 200,000Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â 93.5
Source: IRS
But let’s complicate it. Under current tax law, for a married couple the standard deduction automatically tosses out $12,700 of your income when calculating your income taxes due. Under the House bill, that standard deduction is nearly doubled, up to $24,000 for married couples.
Let’s say, for example, you bought a new RV and financed $200,000 over 20 years. Maybe you couldn’t secure the best rate, so you’re paying your banker 5 percent interest. Over the life of the loan, your average annual interest amounts to $5,839. Unless you have a lot of other allowable deductions, it probably wouldn’t make a lot of sense to itemize – even if you could. In this scenario, not being able to deduct your RV interest doesn’t look like it would hurt you.
Nevertheless, some RV industry pundits are a bit concerned. Speaking of the second-home mortgage interest deduction, Kevin Broom of the Recreation Vehicle Industry Association had this to say: “It’s something that can help people purchase an RV, and most RV purchasers are not super-wealthy.” Contrast RVIA’s view with that of another recreation industry: boating.
Boating trade group National Marine Manufacturers Association says it’s not too worried about the effects the House bill would have on America’s middle class – those who make $100,000 a year or less by their definition. These folks make up the bulk of boat customers, and spokesman Thom Dammrich reasoned, “In looking at the bigger picture, the [House] plan’s lower tax rates are more important for a boater than the mortgage interest deduction as it can provide greater savings overall. Given the lower tax rate for Americans, including middle-class boaters – who make up approximately 72 percent of boat owners – losing the deduction is more than a fair trade for both the industry and boaters.”
Both speakers provided their insight in an article published on cnbc.com. It should be noted that perhaps the RV industry has more cause for alarm. While the typical boat buyer purchases a vessel less than 26 feet, the average price for a 30-footer runs $35,000 to $60,000. It wouldn’t be difficult to spend a great deal more for a comparably sized motorhome, or even a towable unit.
It all could be a moot point. The Senate has still to turn out their own version of a tax bill, and even after they have, there will no doubt be plenty of refining on whatever bill finally gets placed before the president for a signature. Even the most optimistic of those in Washington don’t figure that will take place much before the end of the year.
##RVT821
The RV people who will be most hurt by this Republican tax plan are those who stay in their RVs while working away from home. A construction worker building a road in Iowa (as example) sending his money home to support his wife and kids in Florida (example) would no longer be able to deduct his living expenses in Iowa. Said construction worker would also not be able to deduct Iowa State tax
Tax law, like all law, is ridiculous. Without naming names and pointing fingers, because neither side actually reads the nonsense, remember the politician that famously stated, “We have to pass the bill to know what’s in it.”? Do away with riders, disallow bills over 2 or 3 pages long and those that aren’t written in language a 5th grader can comprehend, and this country would start changing for the better. Gone would be the days where abortion and firearms are both put in as riders for the sole purpose of scoring political points regardless of how your opponent votes. The person above that stated we should receive a postcard, write our income in, and pay accordingly nailed it. Flat tax this nonsense and be done with it.
I claim the 2nd home deduction on my long form but believe it is ridiculous. A 2nd home is a luxury. The loss would not be upsetting even though I (or my CPA) will continue the long form after the new law is passed. Just get it done already.
Fuel prices and interest rates have started to rise but not enough yet to negatively impact the RV industry. The industry is spending a ton that reminds me of the recent housing bubble. WHEN the next recession hits they will be in a big pile of poo and will get no sympathy from me.
The original intent of the mortgage interest deduction was to make a home more affordable to more people.
A interest deduction on a second home is ridiculous. If you can afford a second home, you don’t need a tax break. This is just a small part of why we have such a big deficit. Our citizens pay some of the !owest taxes throughout the world.
Look for the very wealthy to pay even less.
Americans have become so accustomed to all kinds of ‘special deductions’ for their particular tax use that when some of them (deductions) are threatened, it’s the end of the world. I for one, think there are too many deductions period. What if we all just paid our taxes? A letter sized card on which you fill in your un-adjusted income – and depending on how much that is, you pay your taxes.
I don’t believe an RV is a second home just because it’s got a bed.
I’m not going to make any political statements on this, though I could.
The Republicans and to a lesser extent the Democrats are almost completely beholding to their large monied benefactors and could care less about the folks who elect them. It’s scandalous and unforgivable, if not criminal. Yes, most all the people in the US are going to suffer when/if the Republican tax plan becomes law. And the ironic thing is that those idiots who elected “him” are going to suffer the most….good riddance.
Amen!^
Absolutely. The chickens are going to come home to roost, for those who inexplicably saw the Donald as some kind of savior for the middle class. As everyone now knows, the revised tax law overwhelmingly favors the rich. (Is anyone really surprised?) Perhaps some of the Trumpeteers will finally come to their senses by 2020.