RV really does mean “recreational vehicle” to the Internal Revenue Service. An RV probably can’t make the grade as a business office – at least not if it’s lived in.
The owners of Dell Jackson Insurance Services of California tried to persuade the IRS that their business dealings at motor home rallies qualified them for tens of thousands of dollars in deductions on their RVs in both 2006 and 2007. The write-offs included more than $60,000 for depreciation of a new Winnebago in 2007.
The couple clearly was doing business. Dellward and Judith Jackson strung up a Dell Jackson Insurance banner on the RV, set up a table at the weekend events, gathered sales leads and eventually generated insurance policies from contacts. In fact, the U.S. Tax Court (which decided their case in August) actually figured that the insurance-selling couple spent about two-thirds of their time on business during the rallies.
BUT, they also lived in their RV while at the rallies. Their stays were longer than 14-day limit allowed for business use in federal tax code, making the RV a personal dwelling. In fact, “Any personal use, including watching TV in the RV, makes the entire day a personal day,” the Tax Court’s ruling said. In tax terms, that means no deductions allowed.
Of course, if an RV qualifies as a dwelling, there still might be an exception for a home office, the rule that allows a taxpayer to carve out part of a dwelling for business use. But, the area must be “exclusively used” for business, and the insurance entrepreneurs clearly couldn’t make that argument, according to the decision.
The Tax Court did give some perspective in its ruling. “Section 280A (the law) casts a wide net in this regard and sometimes catches taxpayers, like petitioners, who in addition to their personal use had genuine business purposes.”
But the decision was straightforward. The RV may have been helpful, but it wasn’t deductible. And, by the way, the couple also owed accuracy-related penalties to the IRS as well as the late taxes.
The case, which was reported by tax information provider Western CPE, is Dellward R. Jackson and Judith N. Jackson v. Comm., T.C. Memo 2014-60.
Whether it’s business on the road or an office at home, we at EricJohn Ltd. can help creative businesses sort out what’s appropriate, tax-wise. Owner Eric Buechler is an enrolled agent recognized by the IRS in tax matters.