Recently, there have been a plethora of stories about folks looking for a simpler life. For some, that simpler life is a tiny house where the upkeep and costs are low, and you strip your residence down to the bare essentials. For others, it’s the allure of travel and living life in an RV, always a moment away from adventure.
One of the common questions among those who seek the RV lifestyle has to do with the tax implications of living in a recreational vehicle full time. If you’ve wondering that yourself, wonder no more! You most definitely can claim your RV (or houseboat or any other structure that qualifies) as a primary residence, and here’s how.
Is it a Residence?
When it comes to claiming your home, or your “primary residence,”, the type of home is less important than the series of tests you must pass for it to count as your primary home. According to IRS Publication 523, a “single-family home, condominium, cooperative apartment, mobile home, or houseboat can all count as a residence.”
For it to count as a residence, it must have on-board permanently mounted sleeping, cooking, and bathroom facilities. A houseboat with those facilities would count. A rowboat would not. If the physical structure itself is relatively unimportant beyond the three facilities, what other rules must we follow for it to be considered a primary residence?
Is it your Primary Residence?
Once you’ve satisfied the rules regarding the residence, you now have to pass the rules regarding which residence is your primary residence. This is important because there are tax implications, such as the ability to deduct certain homeowner’s deductions such as loan interest. If you purchased a houseboat with a loan and that houseboat is your primary residence, the interest paid is tax deductible.
It might surprise you but the IRS Publications don’t define “primary residence.” They instead call it your “main home.” The publication lists a series of tests, called the “facts and circumstance” test. The facts and circumstances test itself isn’t clearly defined, but they suggest that you show your main home listed as your U.S. Postal Service address, Voter Registration Card address, tax return address, and your Driver’s license and car registration.
The point of the definition appears to be one of common sense. If you own an RV and it’s parked on your driveway outside of your house, it would be hard to argue your RV is your main home. It could be a second home, which for interest deductions is all that matters, but it wouldn’t be your main home. If you own an RV that you live in and it’s parked on your brother’s driveway, then you could probably safely claim it as your main home.
What are the major tax implications?
If you sell your main home for a gain, you could qualify for the $250,000 capital gains exclusion as long as you satisfied the eligibility rules of that particular tax benefit. While it’s unlikely you’d be able to sell an RV for a gain, certainly other structures can appreciate.
Even if your RV isn’t considered a primary residence, it could be a second home. In either case, the interest payments on a loan could be tax deductible. The RV or boat would have to be the collateral on the loan for the interest to be tax deductible. Any sales tax or vehicle registration fees paid could be tax deductible as well. Unfortunately, repairs and maintenance are not tax deductible.
If you want to live life on the road or moored to a dock, you certainly could. You could also claim it as your main home, get a few extra deductions, and keep a little more of your cash in your pocket. There’s no need to know these rules, though, TurboTax will ask you simple questions and give you the tax deductions and credits you’re eligible for based on your answers.