You own an RV and decide to rent it out for some extra cash. How do you deal with taxes? Let’s dive into understanding the section 179 deduction on your RV rental.
First, it’s important to separate the different types of RV rentals.
Residential Rental if you live FULL-TIME in your RV
If you are full-time and decide to take a 10-day vacation. Instead of storing your home (RV), you rent it out. Now your RV is split between personal and rental use. It’s extremely important to keep track of personal use days and rental use days.
Personal use means use by the owner or owner’s family and includes anyone paying less than a fair rental price.
To learn more about personal use, visit this post.
If you only rent out your personal residence (your RV as a full-timer), then you don’t qualify for the Section 179 deduction.
Rent your RV out for less than 15 days?
If your RV is rented out fewer than 15 days during the year, you don’t have to report any of the rental income nor can you take any of the rental expenses as deductions. Consider it a gift. It’s no different than renting out a traditional home or vacation spot for 14 days or less.
100% Business Use of RV
If you personally use your RV strictly for business purposes with absolutely NO personal or entertainment use, then you might qualify for a Section 179 deduction.
This applies if you have a sticks-and-bricks home and use your RV to travel to clients instead of flying or driving and staying in a hotel. Let’s say you travel to Portland to teach a 4-day course in person. You leave behind your traditional home for this business venture.
Why does this qualify for a Section 179 deduction? Because you are using the RV for business only and for overnight business stays which qualify as transient lodging, both are qualified Section 179 uses.
Should you live full-time in your RV, you don’t qualify for business use of your RV. Therefore, you also don’t qualify to take a Section 179 deduction.
Keep in mind there could be other tax strategies available to someone who uses their RV 100% strictly for business purposes and maintains a home. Bonus depreciation could be available (depending on the year) and also regular depreciation. It’s always best to consult with a tax professional to help with tax planning and think beyond the current year.
100% Rental Use of RV
This is where you list the RV on sites to rent it out to strangers using sites like Outdoorsy, RV Share, RVnGo, etc. You earn income and have expenses related to the rental. This might qualify you to take a Section 179 deduction since your rental activities qualify as a business for tax purposes.
Thus, make sure you’re a business before you even think about taking the Section 179 deduction. Owning rental property qualifies as a business if you do it to earn a profit and work at it regularly, systematically, and continuously.
Why does this qualify you to take the Section 179 deduction? Because you have transient use of your motor home when the average annual rental period is less than 30 days.
For example, you rent the motorhome for 185 days during the year to 20 different people. Your average rental period for the year is 9.46 days. This means you are renting to transients.
Basically, this turns your RV into a hotel for tax purposes and personal property in hotels qualifies for Section 179 deductions. This is especially true if you are providing substantial personal services like cleaning, fresh linens, etc.
Avoid Personal Use
When you rent to transients, you should avoid any personal use. This includes use by you, your family, or anyone paying less than fair rental value for the RV.
If you do split the use of your rental RV and occasionally use it to take your family out on vacation, you will need to split the expenses. You no longer have 100% use of the RV as a rental. Now it might only be 75%.
Let’s say it’s used by you and your family for 25 days out of the year. The other 75 days it is rented out. The total use of the RV is 100 days. Therefore, your business percentage of use is 75%. You can take your expenses at 75% of the costs.
RV rentals only qualify for Section 179 deductions if used more than 50% for business. If you don’t have more than 50% business use, you can still depreciate the RV based on the percentage of business use. This is if you report the activity on Schedule C and have active participation.
Lastly, if you report your RV rental on Schedule E as a residential rental, then it will never qualify for the Section 179 deduction. Let’s repeat that… Schedule E rental property does NOT qualify for Section 179.
What other questions do you have about using your RV for business? Drop me a line below.
