Is Interest on a Loan for a Mobile Home Tax-Deductible?

The Internal Revenue Service allows taxpayers to deduct the amount of annual interest payments made on a mortgage that is obtained for the sole purpose of purchasing a home. The deduction is also available to taxpayers who own residences other than houses. The definition of a home extends to mobile homes, house trailers, boats and many other property types that are lived in by a taxpayer.

Qualified Home

• The interest paid on a loan used to purchase a main residence plus one additional home can be deducted on a personal income tax return. The IRS includes mobile homes in its definition of properties eligible for the deduction. To qualify for the mortgage interest deduction, the mobile home must have sleeping, cooking and toilet facilities. Taxpayers are free to designate the mobile home as either the main or second home. However, a main home must be the residence where you ordinarily live most of the time.

Qualified Loan

• For interest to be deductible, the loan must be secured by the mobile home. The loan document you sign when purchasing the mobile home must state that the ownership interest in the home is security for payment of the debt. The document must be legally enforceable and provide that in the event of a default, the mobile home will satisfy the debt. If you purchase the home with funds borrowed from a credit card, the interest is not deductible since it is unsecured debt.

Limitation

• The annual amount of mortgage interest that you can deduct each year may be limited. The IRS allows a deduction only for interest that is accrued and paid on a maximum of $1 million in principal loan balances on up to two qualified homes. For example, if the outstanding loan balances on the mobile home is $300,000, and $800,000 on another home, the interest that accrues on the excess $100,000 cannot be deducted. If any of the funds from the loan were used for purposes other than allowable home acquisition costs, interest accruing on that portion is not eligible for the deduction.

Residential Living

• The IRS imposes an additional requirement that any home related to the deduction of mortgage interest must be used for residential living by the taxpayer. If you rent out the mobile home during the year, you must also use it as a personal residence to take the deduction. Personal use must be the longer of 14 days per year or more than 10 percent of the time it is rented at fair value.

  If the mobile home is used as a main home, renting a portion of the home will not destroy the interest deduction provided the tenant uses it as a residence; it is not a separate unit with cooking and toilet facilities; and you do not rent more than two separate areas of the home per year.

Points

• Points, such as loan origination fees or interest discounts, can also be deducted if their payment is required in order to obtain a mortgage for the purchase of a mobile home. The deduction of interest points is taken ratably over the life of the loan.