The RV and the Traveler: Part 1
By Joseph Smith, EA, contributor
One great way to see the country is to travel in a recreational vehicle (RV), and many travelers have found the RV lifestyle an excellent way to have lodging and mobility during assignments. Some winter destinations are not friendly to an RV, but with the vast number of campsites available, one can find plenty of opportunities.
Using an RV for your assignment lodging creates an interesting tax dilemma and there are a number of ways to approach these expenses. The following breaks down the deductible components of an RV.
Always deductible items:
Regardless of whether an RV is used as for lodging on assignments, there are two items commonly deductible for RVs:
1) Property taxes: many states impose a tax on ownership that is based on the value of the asset. These types of property taxes levied on the RV are deductible on your federal tax return.
2) Interest: a taxpayer can deduct mortgage interest, or interest payments on acquisition indebtedness, for a first and second home. An RV that can be used for one’s lodging generally is considered a second home for tax purposes (or it can be the primary home). As a result, any interest paid on the purchase of an RV is tax deductible. It is important not to mingle debt associated with the RV with any personal debt that you may have. That way the interest payments can be isolated in case recordkeeping is required during an audit or for other documentation.
Deductible depending on use:
When travelers use RVs for assignment lodging, they can potentially deduct significant expenses of ownership and use.
1) Depreciation: the largest deduction comes from depreciating the cost of the RV. Depreciation is the method by which the cost of an asset that lasts longer than a year is written off. Outside of special depreciation elections, an asset like an RV is normally written off over 10 to 15 years. There are special depreciation elections and allow a large amount of the purchase to be deducted in the first year and then the remainder during the subsequent 10 to 15 years.
2) Utilities: just like an apartment that requires electricity, gas, water, and trash disposal, an RV requires a source of utilities. Instead of natural gas, it may be propane and there may be other variations of utility usage. Regardless of the type, these are provisions necessary to occupy the RV for an extended period.
3) Lot rent: usually required when using campsites or other similar arrangements
4) Miscellaneous items: there may be other items necessary for the RV to travel as well stay stationary for its occupancy. Items like trailer hitches, headlamps and other repair items are often necessary.
5) Travel costs: finally, purchases for gas and repairs are necessary for the RV to be mobile.
The perils of conventional wisdom:
The conventional wisdom among most taxpayers who use their RV for assignment lodging is that all of these expenses are deductible, or should be deductible. In next month’s installment, we will find out that that is not always the case. Since most travelers are be reimbursed for their lodging under some form of per diem payment, this has to be taken into account as well as long-term usage issues and cost recoveries. With the next installment, I’ll suggest the methodology that works best for tax purposes. It may surprise you.
About the author:
Joseph Smith is an IRS Enrolled Agent (EA) and former travel respiratory therapist whose firm, TravelTax, provides tax preparation and audit representation for the mobile professional.
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