Tax Implications

[lbffl]

A friend of mine said that he can deduct the interest on the loan from his Hybrid as long as he can show that he spends at least 2 weeks in it because it will qualify as a 2nd home.

I haven't heard of that, but thought I would pose that question to the forum.

Could anyone expand on this or am I being fed a line?

[OC Campers]

When we had a loan on our PU we claimed the interest because it had a full bathroom.  Basically if you could live in it you can claim it.

Jacqui

[chasd60]

This is my third year of claiming my camper on my taxes. The first two years were with a popup and this year is the hybrid. I claim the loan interest and the excise (road use) tax on mine.

[Tim5055]

First, always consult a qualified tax professional - You get what you pay for with internet advice.  Now, with that said you need to meet two popints to deduct the interest:

For you to take a home mortgage interest deduction, your debt must be secured by a qualified home. This means your main home or your second home. A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.

You can deduct your home mortgage interest only if your mortgage is a secured debt. A se cured debt is one in which you sign an instrument (such as a mortgage, deed of trust, or land contract) that:

• Makes your ownership in a qualified home security for payment of the debt,
• Provides, in case of default, that your home could satisfy the debt, and
• Is recorded or is otherwise perfected under any state or local law that applies.

In other words, your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. If you cannot pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt.

The above information can be found in IRS Publication 936 Home Mortgage Interest Deduction

So, if your pop up has sleeping, cooking and toilet facilities (no specific definiton in the law) and your pop up secures your loan you probably can deduct the interest

[brainpause]

So, what does that mean if we pay cash for a camper?

Larry

[mike4947]

So, what does that mean if we pay cash for a camper?
 
Larry

You saved a whole bunch in interest you'd have to pay with a loan, which is about 4 times any tax savings you might get from deducting the interest off your taxes.

[brainpause]

You saved a whole bunch in interest you'd have to pay with a loan, which is about 4 times any tax savings you might get from deducting the interest off your taxes.

Yes, I see that. But it almost feels like a person could be penalized by the government (not the bank) by paying cash.

We haven't bought yet, and won't for another couple years, but just something I was wondering about. I remember this topic coming up often on the old PUT board.

Larry

[Tim5055]

Larry, Mike is correct (but a little low on his estimate I think).  The "tax advantage" of a mortgage (or deductable loan) are blown way out of proportion.

As an example, I pay over $5,000 in interest on my mortgage whitch yields me less than a $1,000 tax savings.  Not a great incentive.

[chasd60]

Yes, I see that. But it almost feels like a person could be penalized by the government (not the bank) by paying cash.
 
 We haven't bought yet, and won't for another couple years, but just something I was wondering about. I remember this topic coming up often on the old PUT board.
 
 Larry

You are not penalized by paying cash. Youy are given a deduction for mortgage interest for the camper. You can only use this deduction if you go long form therefore the deducution in itself is really not allowed if it is the only thing you have.
 
 An analogy to what you are saying can be likened to a person being penalized for not having children and not getting the deduction for children that those that have children get. You do not get deductions for things you do not have.

[Azusateach]

I used a home equity line of credit to pay for my PU, and was able to deduct the intrest on the loan.  Guess it's about the same either way, except the interest on HELOCs are generally lower than what you'd get for a trailer loan.  Remember, your license is deductible (at least in CA) also.

[NCSunshine]

Your interest is deductible as long as it is the first or second home.

For example, we own our home and have a lake house and our camper.  We could take the interest on our home and one other, so we could choose the lake house or the camper.  The one with the highest interest paid is the lake house so we use that one.  Therefore, we are not allowed to use the interest on the camper.

Everyone's situation is different and your tax advisor is the best one to inform you of the best way to file your taxes.

As for the tags, I don't know of that deduction.  You may be referring to vehicle taxes paid to the county/city that are deductible for all vehicles, trailers, etc.  Anything that requires a tag and you pay county/city taxes on.

[LittleRainmaker]

Larry -

And don't forget that starting this year (2004 tax year) you can deduct your sales tax.  I bought my hybrid last year and paid cash - but I still get to deduct the amount of the sales tax.

KJ

[Tim5055]

Larry -

And don't forget that starting this year (2004 tax year) you can deduct your sales tax.  I bought my hybrid last year and paid cash - but I still get to deduct the amount of the sales tax.

KJ

KJ,

Be very careful with this advice...  the deductibility of sales tax is different for everyone.

For background, there are few states in the US that do not levy a state income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming IIRC).  Residents of those states complained that they received no benefit from the clause in the federal tax code that allowed the deductibility of state income tax, because they didn't pay any.

So, effective with the 2004 tax year everyone can deduct one for the following (but not both):

• State Sales Tax
• State Income Tax

So, always consult with a tax professional.  As I said before, you get what you paid for with Internet tax advice.

[brainpause]

Tim, you are right.

However, Kathy and I live in the same state, so I guess it was directed specifically at me and others in Tennessee.

Like you said, Internet advice is free, and we should remember that.  

Larry

[LittleRainmaker]

Opps - guess I should have specified that Brainpause and I both live in TN where sales tax is now deductable.  Tim - you are correct, the advice of professional tax preparation folks is always the best way to go...