Can I take my Tiny Home off on my taxes?
Can I take my Tiny Home off on my taxes?
Maybe. You may be able to deduct taxes or interest. There are also office or business use deductions you could qualify for.
It is absolutely worth looking into. Talk to a QUALIFIED tax professional about your specific circumstances. Save receipts. Plan ahead. Think beyond this year.
Here are some deductions you may be able to take.
Sales Tax
Whether you are building or buying, the year you get a Tiny Home, you have likely paid a lot of sales tax, which is tax deductible.
You can deduct sales tax or state and local tax. You have to choose which. You can’t take both.
You can keep all of your receipts or use a worksheet from the IRS. I saved receipts for years. I carefully saved every single receipt for every single thing I bought. I kept an envelope in my purse and transferred them to a plastic file box. At the end of the year I sorted them business or non-business and entered everything into Excel.
The IRS worksheet almost always gave me a higher number. Nearly every single time. But years where you purchases more than usual would be the exception, so save receipts and check.
I still save receipts, but I only need the business ones now. Hanging onto all of them is handy, though. Especially if I need to return or exchange something.
State and Local Income Tax
The other choice is to deduct your state and local income taxes. If you are an employee, you will see it on your W-2. If you are self-employed, you have (hopefully) calculated and paid this yourself.
You have the option to take a deduction for your sales tax or any income tax that wasn’t paid on your federal taxes. One or the other, not both.
State and Local Property Tax
If you have something that is valuable, it is likely taxed in some way. Your property is taxed. Property tax may be deductible from income calculated for income taxes.
At least in North Carolina, anything that is towed* has to have a tag. If your Tiny House is an RV with a tag or built on a towable trailer frame, you have to pay property taxes when you get a tag.
North Carolina property tax law requires counties to assess the value of motor vehicles registered with the N.C. Division of Motor Vehicles.
As part of NCDMV’s Tag & Tax Together program, the vehicle owner pays the property tax at the same time as the vehicle’s registration renewal fee.
If you pay property tax on your tiny house, that tax is deductible. An ADU may increase the value of your home, raising your home property tax… but it’s deductible.
What about Loan or Mortgage Interest?
There are different ways to finance a tiny house, depending on whether it is a park model, manufactured home, modular home or a tiny house that is built in place.
- Title 1 and Title 2 loans finance or refinance homes built on a frame, or chassis. The tongue to tow it can be removed, but it has a metal undercarriage supporting the home.
- Title 1 loans finance or refinance a manufactured home, a developed lot to put your tiny house on or a tiny house already set up on a lot. You can also pull a Title 1 loan to remodel or repair your tiny house.
- Title 2 loans finance “on-frame” homes along with land.
- Fannie Mae, Freddie Mac and VA loans allow you to buy or build a qualifying home.
- Chattel loans finance things like RVs. They typically charge the most interest.
- HELOC Home Equity Line of Credit on another house you own.
If you pay interest on the loan to finance your tiny house, that interest is likely deductible on your taxes.
- Personal loan or credit card loan
If the interest you are paying is not secured by your tiny house or another home, you may still be able to deduct the interest paid if you can document that the money was spent to build or buy your primary or secondary home.
Qualified Home
A home includes a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities.
Publication 936 (2023), Home Mortgage Interest Deduction
For use in preparing 2023 Returns
Whether you live in your Tiny House all year or not, any interest paid on the loan to buy it is likely tax deductible.
Main home.
You can have only one main home at any one time. This is the home where you ordinarily live most of the time.Second home.
A second home is a home that you choose to treat as your second home.Publication 936 (2023), Home Mortgage Interest Deduction
For use in preparing 2023 Returns
Business Deductions
Office Deduction
If you have a home business, the percentage of your home used exclusively for business is deductible. This is based on square footage and if your home is only 400 square feet, this can add up. Save receipts. BUT, how is anything exclusively used for anything? And it is hard to live in a tiny house that has 25% of it filled with boxes of inventory.
Did you buy a tiny house to use as an office? You may be able to depreciate the cost over time.
Business Deduction
If you regularly travel for your business, it may make sense to have a Tiny Towable or an RV instead of staying in a hotel. You may be able to write off expenses and depreciate the cost of the tiny house over time.
… if you have a sticks-and-bricks home and use your RV to travel to clients instead of flying or driving and staying in a hotel. Let’s say you travel to Portland to teach a 4-day course in person. You leave behind your traditional home for this business venture.
Why does this qualify for a Section 179 deduction? Because you are using the RV for business only and for overnight business stays which qualify as transient lodging, both are qualified Section 179 uses.
Should you live full-time in your RV, you don’t qualify for business use of your RV. Therefore, you also don’t qualify to take a Section 179 deduction.
This was written a while ago, but it still applies.
… there could be other tax strategies available to someone who uses their RV 100% strictly for business purposes and maintains a home. Bonus depreciation could be available (depending on the year) and also regular depreciation. It’s always best to consult with a tax professional to help with tax planning and think beyond the current year.
Featured image at the top of the page by QUADRAPOL Tiny House Cabana
*Farm trailers and tow dollies don’t need tags, but that’s not what we’re talking about here.
