Are you struggling to convince your spouse that buying a travel trailer really does make sense for the family? Perhaps the ongoing tax break that comes with that new camper will be compelling enough to win the argument. You can claim U.S. federal income tax deductions for the annual interest expense associated with financing the purchase of a trailer, just as you do for home mortgage interest. The trick is simply following the conditions and limitations outlined in the steps below.
Itemize your tax deductions. The interest payments for trailer loans and home mortgages are only deductible for those who itemize. You will need to have total deductions in excess of the standard deduction amount in order for it to make sense for you to itemize. The standard deduction was $5,700 for single taxpayers or $11,400 for married joint return filers in 2009, according to the instructions to Form 1040.
Determine whether the trailer is a qualified residence. This includes your home plus a second residence that your family lives in for at least 14 days during the year. Qualified residences may include mobile homes, boats or trailers with a sleeping area, toilet and cooking facilities. Therefore, a little teardrop travel trailer will probably come up just short of qualifying, but any Airstream Classic Limited should far exceed the requirements.
Check that the loan meets the definition of acquisition or home equity indebtedness. Any loan up to $1,000,000 secured by and used for the purchase, building or remodeling of a qualified residence counts as acquisition indebtedness. Any other loans secured by the residence up to the lesser of $100,000 or the excess of the residence’s fair value over its outstanding mortgage balance qualify as home equity indebtedness. This means that even if your dream travel trailer is not a qualified residence, you could still finance its acquisition through proceeds from a home equity loan and claim a tax deduction for the interest charges.
Report the deduction on line 11 of Form 1040, Schedule A. The lender probably will not provide you with a Form 1098 to confirm the amount of interest paid on the loan for your travel trailer. You should independently track your aggregate interest payments for the year and proactively contact your lender to obtain confirmation for peace of mind.
