Saturday, January 29, 2011

Inherent Depreciation

Q.  From previous questions, I understand there is an inherent amount of depreciation within the mileage rate pertaining to business use of a vehicle. In order to keep track of the basis of our rig, I need to adjust our purchase price by these amounts, but where can I find them?  LA, Virginia

A.  The IRS doesn't make this easy to find. I found part of your answer on Notice 2010-88, however they only go back to 2007.  My records indicate that from 1994 - 1999 the amount is 12 cents; in 2000 it's 14 cents; in 2001 - 2002, 15 cents; 2003 - 2004 16 cents; 2005 - 2006 17 cents. Fortunately I have a program that figures all this out. For current mileage rates see IR 2010-119.

Friday, January 28, 2011

Turning a Hobby into a Business

Q.  I'm an avid fly-fisherman & since it's relatively easy to tie flies on the road, I'm thinking of starting a business. Some of the guys at our campground are sure I can write off the motor home, but then I heard that this activity may be classified as a hobby. What do I need to do?

A.  Your concern is a legitimate one, and space prohibits a comprehensive reply here. Please go over to my article, just published, at AboutRVing. At the top of the right hand column, there is a link to my article IRS Tax Info for RVers. Currently under the heading Articles, it is the last link. When you get there, page 6 discusses the difference between a business and a hobby. This will answer many of your concerns. Good luck, and write back and let us know how you're doing!

Thursday, January 27, 2011

Residential Energy Credit for an RV?

Q.  There was a recent news item reporting on a residential energy credit for solar panels. Would this pertain to my 5th wheel? We bought 3 new solar panels last year, and it sure would be nice to get a tax credit to offset the cost. CB, Nebraska

A.  The good news is qualified solar-electric property does qualify under IRC Section 25D for a 30% credit. However, the news gets better in that the residence dues not have to be the taxpayer's principal residence. This means, if your RV is a second home, it can also qualify.

Currently there is no limitation as to Adjusted Gross Income (AGI) and the credit is effective through 2016. This means we all have time to upgrade our rigs! For more information, please visit the IRS site (Notice 2009-41) and also visit the Energy Star site.  

Wednesday, January 26, 2011

Tax app for Smart Phones

Q.  I thought I saw something on TV this morning about a new tax app for smart phones. Since we don't always stay in one spot long enough to set up the computer, this might be convenient to have. Do you know what it's called and where I can find it? BL, Illinois

A.  Just today I received an email from the IRS about their new app: IRS 2 Go Since I use an iPhone, I downloaded it immediately & got it up and running. It's a free app available from the App Store & other places listed on the link above. It claims you can check on the status of your refunds, sign up for enews letters from the IRS and access various tax tips. It looks like a winner to me!

Tuesday, January 25, 2011

Reporting the sale of your RV

Q.  After 15 years, it's time for me to buy another motorhome and after reading some of your posts, I realize there may be more to this than meets the eye. Basically, what are the income tax ramifications under these 4 scenarios:
  1.  I trade in the old coach?
  2.  I sell it privately?
  3.  I give it to my son? or
  4.  I donate it to charity? 
Your advice please. JE, Mississippi

A.  First, some general rules:  Anytime you sell a personal asset at a gain, it is a reportable and taxable event. Anytime you sell a personal asset at a loss, since you cannot take the loss on your tax return, most people don't report the sale on their tax returns. You didn't mention if you ever used your coach for business purposes, but if you did, you need to calculate the tax basis, and to the extent you used it for business, you will report the sale in the year sold, and will recognize either a business gain or a business loss.

  1. If you trade in the coach, the trade-in value allowed would be the same as the selling price. Also, on a trade in, if you use the coach for business, it is quite possible to have a tax free exchange, if the asset is sold at a gain. You wouldn't want to use this approach for a loss, which most often, will be the case.
  2. Same as #1 above other than here you would be actually receiving the sales price directly in the form of cash or a check.
  3. If you give the coach to your son, your remaining basis becomes his basis and under current law, you can gift up to $13,000 without having to file a gift tax return.
  4. If you donate your coach to charity, usually the charity will sell the coach and separately report the sales proceeds they received  to you. This is the amount you can take for a tax deduction.
Tax Tip:  If you ever use any part of your RV for business purposes, always keep track of your basis. You never know when just the right deal comes along and, on a lark, you decide to buy a new rig. Stay prepared!

Monday, January 24, 2011

Balance Sheet Blues

Q.  I'm trying to help my dad with his partnership tax return, and I see on the last page they want the Balance Sheet information. How do I get this from his checkbook and why do I need it? AG, Georgia

A.  Unless you have an understanding of accounting, trying to create a Balance Sheet from a check book is a pretty tough job! Your need  a double entry bookkeeping system. With that, it would be a snap. Depending on the circumstances, you may not need to enter the information on the tax return. Generally, if Gross Receipts are under $250,000 and Total Assets are under $250,000, you can opt out of putting that information on the return by using a check box.

Tax Tip:  If your business is an entity other than a sole proprietorship, more complex books and records are required.  Other than income tax concerns, there is one outstanding reason to keep a double entry bookkeeping system: designed over 300 years ago to avoid mistakes, it still serves this most important function.