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Steve Windhaus Ask the Small Biz Adviser

Writing off business use of an RV

Dear Small Biz Adviser:
I am wondering about treating my motor home as a business asset. I own a small, starving Internet business, selling RV-related products. In the last year, during all of my four trips I have talked with campground owners and other campers about purchasing my products. I need to drastically reduce my adjusted gross income, and was considering the depreciation, interest, storage and taxes related to my motor home.
Thanks,
Dan

Dear Dan:
The term "adjusted gross income" is referred to on individual tax return forms 1040EZ, 1040A or 1040.

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Since you are operating your own business, the more appropriate term is "net profit or loss," which is the earnings, after qualified expenses, from a business venture and is reported on Schedule C. This is the case if you operate a proprietorship. The Schedule C is filed with the long 1040 form, onto which your business profit or loss amount is transferred and added to any other income you may have to arrive at your AGI.

If your company is incorporated, you would then refer to "taxable income" for a C corporation on Form 1120, and "ordinary income" for an S corporation on Form 1120S.

Rolling deductions
Regardless of the legal type of company you operate, let us now consider the use of the recreational vehicle for business expenses.

If the RV is used exclusively for business, then you may deduct all expenses associated with its upkeep, maintenance, travel and storage, as well as depreciation, interest on any associated loan and vehicle taxes.

If, on the other hand, you use the motor home for personal as well as business matters, then you may have a problem. In this case, to deduct the business-related travel you should have maintained a daily log on the mileage and use of the vehicle. This log would differentiate between its use for business purposes or personal travel. A very detailed description of deductible business expenses can be found in IRS Publication 535, Business Expenses.

IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses, sets the limits on depreciation and other business expenses you can apply to the vehicle.

Don't overlook your fixed housing
Based on the content of your inquiry, I suspect you may be operating the venture out of your house. If that is so, then you may have overlooked another set of deductible expenses. IRS Publication 587, Business Use of Your Home, details home-related expenses that may include:

  • Mortgage interest expense
  • Home improvement costs that affect your office space
  • Utilities, including electricity, natural gas and water
  • Home insurance premiums

However, keep in mind there are conditions under which the home-related expenses can be deducted. Use of the home office should include one or more of the following:

  • Receiving clients.
  • Billing and bookkeeping purposes.
  • Receipt and storage of inventory.
  • Ordering supplies.
  • Forwarding orders or writing reports.

Finally, there is a formula for determining how much of each expense can be applied against business income. Determine the percentage of the total square feet under roof being used exclusively for the business office. For example, you have a 2,000-square-foot home and 200 square feet are used for office space. Therefore, only 10 percent of those associated, qualified expenses can be deducted from business income.

Be sure the read the details. In the example above, only 10 percent of the mortgage expense can be applied. On the other hand, any lawn-care expenses not directly associated with the business cannot be deducted.

There are other issues of concern and opportunity, but simply too detailed to address in this column. I suggest you go to your local IRS office. The racks are full of publications and forms. Don't forget to ask when the next small business workshop will be held. They are commonplace throughout the United States

I wish you well.

-- Posted: Feb. 12, 2002

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See Also
How business structures affect taxes
Business use of your car may be deductible
Wheeling and dealing for an RV
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