Business Use of A Motorhome -- Note for your tax preparer
Hello,
There was a recent thread with many questions and comments on business use of a motorhome. I thought that there may be RV.net friends who would like further information on that topic.
We bought our motorhome in 2005 and used it for our business for five years. The business use by mileage was 92%. I prepared a short analysis and shared it with our CPA. It is included at the end of this post.
If you are interested in business use, you might share this with your tax preparer. The tax references are to the Internal Revenue Code and Regulations.
For tax returns from 2005-2010 I included a spreadsheet with each trip noted by date, destination, mileage and business or personal purpose. We were never questioned about the RV use. It was beneficial that we also showed a net profit each year on the business activities. Over the five years, business revenue from those trips exceeded the cumulative RV deductions.
After five years, we converted the RV to personal use.
Crespro
===============================================================
Business Use of a Motorhome
Depreciation
Business use entitles one to take Sec. 167 reasonable depreciation. The first year depreciation is prorated based upon the date placed in service. Reg. 1.167(a)-10(b). Bonus depreciation will be 50% in 2013. Remaining depreciation will be over five years. Sec. 168(e).
Since under Shirley v. Commr., T.C. Memo 2004-188 (8/25/2004), a motorhome is a “means of transportation,” the business and personal use must be allocated based upon mileage. Reg. 1.280F-6(e). However, in order to take depreciation, the use must not be merely optional, but must be a “Condition of Employment. Reg. 1.280F-6(a)(2)(ii). It needs to be required in order to perform your duties properly. See Example 2 under Reg. 1.280F-6(a)(4). Use of a personal auto to travel to job sites was permitted, since the company did not provide an auto. Depreciation requires records that show mileage, date, expenses and business purpose for each stop. Reg. 1.274-5T(b)(6).
Expensing
Expensing is permitted under Sec. 179 if there is over 50% business use. The Sec. 179 amount for 2013 is $500,000, so long as depreciable property does not exceed $2,000,000. Expensing is limited to taxable income, but for a proprietorship all income may be counted. Reg. 1.179-2. In this case the vehicle must be required for the convenience of the employer.
There is no proration for expensing in the first year of service. Sec. 179(a). If the motorhome is not used 50% or more for business during the five years, there will be recapture of the Sec. 179 deduction. The basis of the motorhome is reduced by the Sec. 179 deduction, and the five year depreciation is available for the balance. Reg. 1.179-1(f)(1). The lead case on motorhome expensing is Shirley v. Commr., T.C.Memo 2004-188 (8/25/2004). The Tax Court determined that because the use of a motorhome is transient, the lodging exception was not applicable and Sec. 179 expensing applied.
Motorhome Expenses
The motorhome will usually be personally owned. The owners will take the Sec. 179 expensing and Sec. 162 deductions. During a period of several weeks per year, the motorhome will be used to travel to major clients. For this use, the business will pay the individual the motorhome travel expenses, and a commercially reasonable daily rental fee. The business will maintain a separate motorhome travel account for these expenses.
The owner will maintain a log with mileage, locations and business purpose for each stop. Since the business would otherwise be paying for airfare, hotel and car rental for these meetings, there is a clear business purpose. The anticipated business mileage per year will be 90% of total miles. All deductions will be prorated annually based upon business and personal miles. Records will show the business purpose of all travel designated in that category.
There was a recent thread with many questions and comments on business use of a motorhome. I thought that there may be RV.net friends who would like further information on that topic.
We bought our motorhome in 2005 and used it for our business for five years. The business use by mileage was 92%. I prepared a short analysis and shared it with our CPA. It is included at the end of this post.
If you are interested in business use, you might share this with your tax preparer. The tax references are to the Internal Revenue Code and Regulations.
For tax returns from 2005-2010 I included a spreadsheet with each trip noted by date, destination, mileage and business or personal purpose. We were never questioned about the RV use. It was beneficial that we also showed a net profit each year on the business activities. Over the five years, business revenue from those trips exceeded the cumulative RV deductions.
After five years, we converted the RV to personal use.
Crespro
===============================================================
Business Use of a Motorhome
Depreciation
Business use entitles one to take Sec. 167 reasonable depreciation. The first year depreciation is prorated based upon the date placed in service. Reg. 1.167(a)-10(b). Bonus depreciation will be 50% in 2013. Remaining depreciation will be over five years. Sec. 168(e).
Since under Shirley v. Commr., T.C. Memo 2004-188 (8/25/2004), a motorhome is a “means of transportation,” the business and personal use must be allocated based upon mileage. Reg. 1.280F-6(e). However, in order to take depreciation, the use must not be merely optional, but must be a “Condition of Employment. Reg. 1.280F-6(a)(2)(ii). It needs to be required in order to perform your duties properly. See Example 2 under Reg. 1.280F-6(a)(4). Use of a personal auto to travel to job sites was permitted, since the company did not provide an auto. Depreciation requires records that show mileage, date, expenses and business purpose for each stop. Reg. 1.274-5T(b)(6).
Expensing
Expensing is permitted under Sec. 179 if there is over 50% business use. The Sec. 179 amount for 2013 is $500,000, so long as depreciable property does not exceed $2,000,000. Expensing is limited to taxable income, but for a proprietorship all income may be counted. Reg. 1.179-2. In this case the vehicle must be required for the convenience of the employer.
There is no proration for expensing in the first year of service. Sec. 179(a). If the motorhome is not used 50% or more for business during the five years, there will be recapture of the Sec. 179 deduction. The basis of the motorhome is reduced by the Sec. 179 deduction, and the five year depreciation is available for the balance. Reg. 1.179-1(f)(1). The lead case on motorhome expensing is Shirley v. Commr., T.C.Memo 2004-188 (8/25/2004). The Tax Court determined that because the use of a motorhome is transient, the lodging exception was not applicable and Sec. 179 expensing applied.
Motorhome Expenses
The motorhome will usually be personally owned. The owners will take the Sec. 179 expensing and Sec. 162 deductions. During a period of several weeks per year, the motorhome will be used to travel to major clients. For this use, the business will pay the individual the motorhome travel expenses, and a commercially reasonable daily rental fee. The business will maintain a separate motorhome travel account for these expenses.
The owner will maintain a log with mileage, locations and business purpose for each stop. Since the business would otherwise be paying for airfare, hotel and car rental for these meetings, there is a clear business purpose. The anticipated business mileage per year will be 90% of total miles. All deductions will be prorated annually based upon business and personal miles. Records will show the business purpose of all travel designated in that category.
