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 25,000 6.0
25,000 to 50,000 21.4
50,000 to 75,000 41.7
75,000 to 100,000 58.3
100,000 to 200,000 78.8
Over 200,000 93.5
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.