Tuesday, September 30, 2014

Tax Court disallows RV Business Deductions

As I have often repeated, much of what we think may be deductible is conjecture until a case comes to court and a ruling has been made.

Sadly, RVers who took deductions for depreciation and interest on their RV, even though the tax court acknowledged primary business usage, were disallowed due to conflicting language in IRC section 280A. The ruling Jackson, T.C. Memo, 2014-160, August 7,2014 is likely to be the precedent the IRS will follow in the future. (Please use link for full text & details)

The ruling cost the taxpayers $42,228 in back taxes covering two years and an additional $8,445.60 in penalties for a total of $50,673.60 - ouch!

Although this ruling wipes out our ability to take depreciation and interest, there are still several deductions available to RVers using their rigs for business. If you keep scrupulous records as to mileage and expenses, you can prorate the business use for the vehicle(s) in question; and if you meet the requirements for mortgage interest, they can still be used in full on Schedule A, so all is not lost. I would caution you not to use the mileage method for vehicle costs as there is a component of depreciation in the mileage rate. Therefore, it is prudent to use actual costs; however, most RVs today cost far more to operate than any mileage rate allowance, so this should not pose a problem.

As a total aside, the vast majority of questions this year were repeats of what has previously been published, thus I only posted questions which had not been covered. So, although 2014 is pretty skimpy as compared to past years, please keep the questions coming and if they have not been previously addressed and are of general interest, look for the answers here. Thanks for your continued support!