MWeiner

Self Financed RV or Underwater With Traditional Loan?

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MWeiner   

You can save a lot of interest payments by self financing your rig and paying back yourself...  Used Class B's are typically less expensive than many larger Class A's or C's and even some 5th wheels with tow vehicles. 

And,  RV's that are "not motorized" like 5th wheels have lost the tax deductible interest in 2018.  

In a few short years,  your RV could depreciate MUCH faster than the rate that you pay off your loan.  What do you think? Is this a concern especially with the new 2018 taxes? 

 

 

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wolfe10   

Haven't seen the statute that would remove tax deduction for interest in non-motorized RV's.  Do you have a link?

And, at least in the automobile business, the term is "upside down".  Not sure it is better or worse than being "underwater".

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manholt   

Last thing I read and heard from my CPA and FMCA is that RIVA was in the process of re wording RV's to fit in the same category as a Vacation or 2nd home.  I'm waiting on the come, before I commit myself to write about it.

Must be something to it, as it has not to my knowledge slowed down the RV Industry!  So like Brett asked you...do you have a link? 

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MWeiner   
1 hour ago, wolfe10 said:

Haven't seen the statute that would remove tax deduction for interest in non-motorized RV's.  Do you have a link?

And, at least in the automobile business, the term is "upside down".  Not sure it is better or worse than being "underwater".

Yes, "upside down" is correct....

 

https://rvtravel.com/towable-rv-owners-lose-benefit-new-tax-bill/

 

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MWeiner   
1 hour ago, wolfe10 said:

Mark,

Thanks for the link.  Always something new out of Washington.

You're welcome....  plus there's this article... nothing encouraging here..... link and excerpt.... below

https://www.cnbc.com/2017/12/20/here-are-the-finalize.html

Bottom line,   it doesn't take many years of payments on a 20 year note to find yourself "upside down".... RV's have a way of depreciating quickly especially in the first 5 years of ownership,  so,  one way to make this a softer landing is to purchase a five year old model with as few miles on it as possible.   Sometimes difficult to find...    

See this language from the article link above;   it says that the interest you pay on a loan is for a vacation house, qualifying boat, or RV would NOT be deductible after this year,  UNLESS you are renting this out as part of a business activity.  

Either way,  even if this is up for discussion, paying 6 percent interest and getting LESS return on your investments is NEVER a good plan. 

Mortgage debt

If you already own a pricey home and it's your primary residence, you're in luck. Under the bill, homeowners who purchased a house before Dec. 15 of this year will be able to continue deducting the interest they pay on mortgage debt of up to $1 million.

For purchases after that date, that cap is lowered to $750,000 — and only for the mortgage on your primary residence. This means that the interest you pay on your loan for a vacation house — or qualifying boat, recreational vehicle or camper — wouldn't be deductible after this year.

However, if you rent your vacation home — i.e., your rent out your beach house for a portion of the year — you can at least write off the costs associated with that activity, which would include a portion of mortgage interest and property taxes.

Additionally, while the cap on mortgage interest reverts back to $1 million in 2026 regardless of when the home was purchased, there is no provision that would bring back the tax break for second homes.

Home-equity debt

Interest paid on home-equity loans will no longer be deductible beginning in 2018, with no grandfathering in. In other words, if you already have a home-equity loan or line of credit, this is the last year you can write off the interest paid on it for a while.

In 2026, this provision will revert to current law, which allows a deduction for interest paid on up to $100,000 of home-equity debt.

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FIVE   

Depreciation is like fuel mileage, if any body is really really concerned about it, they are probably are in the wrong hobby.

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manholt   

Mark.

The RV. Traveler said the same thing as we already knew.  Motorized RV's (motor homes) are still interest deductible and TT are not.

The CNBC article, is skewed news, as it always is and according to all else I have read, has no bearing off the truth...out of context.  

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At least the tax deduction will not hurt me, as I have never had one on my motorhome anyway, because there was never a loan on it anyway. The new law will do just like the bill did when Reagan lowered taxes and got rid of deducting interest on everything else, people will turn more to second mortgages on their primary home to now buy a TT. As I understand the new bill, most middle class citizens will receive a substantial tax benefit, thus paying lower taxes anyway regardless of what you buy, I'm keeping my fingers crossed. I'm still hoping for the day that I can file on a postcard. LOL! :rolleyes:

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1 hour ago, manholt said:

Kay, Post Card?  Good luck with that..:lol:

Yep, I'm afraid that you and I both be 6 and 1/2 feet under before that happens.:ph34r:

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TBUTLER   

I'm interested in the details of "self financing," how exactly do you do that? 

Where exactly does that money come from?  Savings, retirement plan, investments?

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jleamont   
12 hours ago, kaypsmith said:

I'm still hoping for the day that I can file on a postcard. LOL!

I'm still waiting for when my tax refund can purchase a post card :lol:

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jleamont   

Most RV's financed are "upside down" or "underwater". When you think about it...if you refinanced your house and bought it that way you could be worse off. I know people that did it that way and are paying on trailer #1 via a house mortgage and traded #1 for #2, traded #2 for #3, rolled #2 into #3 all the while the 30yr taken out of the house on #1 is still on the table :huh:.

I have also had people mention "return on investment" while on the subject of RV's. I am certain there is almost no chance of making a profit on any RV (unless high end...maybe or bus conversion) after owning and using for a few years. You might breakeven if financed, but not likely. Best bet, get what you want, pre plan properly, go out with your RV of choice and enjoy life.

We currently do not write off the coach, we have other property beyond the house we reside in and the accountant told us pick one, cant do all. In my experience from owning a small business, you spend $1000.00 you get 1 cent back

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The new tax bill increases the standard deduction from $12,700 for a married jointly filed deduction to $24,000, which means that anyone filing will have an auto increase in their deductions using the standard rate table,  regardless of what you spend your money on, plus the fact that the rate cap is lowered in each category.

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rfsod48   

The only way I know of to self finance is to take money out of savings, out of retirement funds or home equity. With the current stock market I would not want to lose gains to finance mh so equity loan is only path and as previously stated this is probably not a wise decision for most of us.

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TBUTLER   

That is pretty much my point.  If you are taking money you have stored away, you have to consider the returns on that money which you are giving up.  In the case of current returns in the stock market, that would not be a good exchange unless you have a horrible interest rate on our motor home loan.  If you have money in a savings account, sure withdraw it, I don't know where you can get a return on savings or even money market accounts that equals a loan interest rate.  But then if your savings account is your emergency fund, you are giving up that level of security that you have built up.  Come one emergency and then you have to find a loan at the going rate.  You could secure it with your home or with your motor home. 

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The next to last home we owned, it was a struggle for me to convince my wife it would be to our financial benefit to get a mortgage. I finally won that one and we basically lived free for several years because of the income our investments provided. My thought is if I can use someone else's money for large purchases while I use my money to make more money, that's what I'll do. 

Yes I know, Dave Ramsey is doing backflips at that idea.

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wolfe10   

Some good information, Mark.

But since it was written February 26, 2010, certainly the tax part of that may be misleading in 2018.

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MWeiner   

Go ahead and set the tax issue aside... paying an extra $60,000 in interest payments over the life of a 20 year loan makes no financial sense... period. 

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MWeiner   
1 hour ago, elkhartjim said:

When the return on my investments during this time period are greater than the dollars payed out are it makes perfect sense.

Well, if you have that much money in expensive real estate and stocks...you have nothing to worry about....

For those with much less...we have to save where we can... 

My coach payments of $600 per month for 20 years at 6 percent interest.. would have been $60,000...; Now consider instead of paying the regular payments to the finance company...I pay this amount back to myself for the next 240 months... that's $144,000 back ....one way or another.. you're going to be making payments somewhere...

Aside from real estate and extremely aggressive and risky stocks.. where are you going to receive a return more than 6 percent....I suppose it's possible, but, certainly not guaranteed.....

Finally, there's the security of knowing that it's all paid for...big comfort factor...

Now, I wouldn't ever recommend paying off your house especially if your interest rate is less than 4 percent..... but, paying off a higher percentage note is always a preference.... Just my opinion...

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