August 09, 2021

Home office deduction for RV owners

I bet you came here from an RV forum, where someone claimed they took the home office deduction for their RV on their tax return. You are thinking of taking the deduction, but you need to know more to understand how it works. Well, you came to the right place.

Here is a starting point for your tax research. Unless you prove the IRS otherwise, they will classify your RV as a dwelling unit and all dwelling units are subject to Section 280A rules. Under this section, 15 days of personal use will make your RV a personal residence. And you can’t deduct business expenses for a personal residence unless a part of your residence is used EXCLUSIVELY for business.

There were two cases where the tax court disallowed BUOH deductions for RVs because the exclusivity rule was not met. In Jacksons, the couple didn’t prove that they used their RV personally for less than 15 days and this made their RV a personal residence. They also didn't provide the square footage of their home office that was used exclusively for business. As I mentioned above, you are not allowed to take business tax deductions on a personal residence UNLESS a part of it is used exclusively for business. Because of these limitations, the Jackson's lost in court. The same happened to the Dunfords. The couple claimed that the RV countertop was used as a business space. However, they didn’t provide the square footage percentage, and the Tax Court could not figure out the correct tax deduction. In addition, the Court ruled: “It is implausible to suggest that, in the cramped quarters of a motor home, an unclosed area like the countertop would somehow be exclusively reserved to business activity”.

Does that mean that your dream to take a home office deduction is officially over? Well, if you are feeling adventurous, here is a tax court case with the opposite outcome. In this case, Albert Mills defended his business use of home deduction despite living in a 422 square foot apartment. He kept his tools and supplies in a small storage area that he didn’t use for any other purposes. The tax court allowed home office deduction for this specific area.

How can you apply the Mills case to your RV situation?

The IRS recognized that the exclusive use rule can be difficult for owners of small homes and they came up with what we call the "de minimis” personal use. This means that you can set up your office in an area that you must walkthrough for personal reasons. For example, you can deduct the home office even though you have to pass through it to get to the bathroom. Think of the de-minimus rule as a walk-through rule. If you simply pass through the area, you can use it for the office space. If you use this area to eat or watch TV, then you cannot deduct it.

The tax court denied the Dundorfs's deduction because it was obvious that the countertop could be used for other personal activities. For example, the taxpayers could easily use the countertop for eating or socializing. But what if you have a business storage cabinet, which you cannot use for anything besides business. You cannot eat on it. You can not sit on it. You use it only to store your business files and tools.

If you pull a table to it and do your work there, then hypothetically you can deduct the business use of space taken by the cabinet. The cabinet is exclusively used for your business. And you are allowed to pass through the area due because of the “de-minimus” rules.

If it all looks unachievable, there is another piece of information for you: Section 280A(f)(4), states that "Nothing in this section shall be construed to disallow any deduction allowable under section 162(a)(2). Section 162(a)2 allows deduction of traveling expenses while away from home on business. This means that you can deduct travel expenses such as gas, insurance, repairs, and depreciation of your RV. Who needs a small deduction for the home office when you can deduct a bunch of travel expenses? If you decide to go that route, you need to keep records of your trips and make sure you log both mileage and sleep nights. And also, brush up on transient nights and the definition of tax home. You can read up on it here.

You will have significantly more chances of winning the IRS audit, if you have some closed-off area around your home office. Or better, a separate room. In addition, the home office deduction for such a small business space may not even be worth your time. You may be better off with travel expenses.