Tax Savings

THE RV RENTAL BUSINESS

Financial and Tax Considerations Recreational Vehicles are very popular and are very much in demand. One in every 10 households owns an RV. Of the nearly 10 million RVs in the USA, it is estimated that 9 out of every 10 RVs are used less than 30 days each year. This can make RV ownership quite expensive. An alternative to RV ownership would be renting. Although there are a wide variety of reasons people use a Recreational Vehicle, one of the most common uses is for a family vacation.

One of the most popular rentals is the Class "C" motor home. The Class "C" is a scaled down version of the Class "A" motor home. The Class "C" is 18 to 31 feet in length and built on a truck chassis. It usually includes a large sleeping area above the cab and is capable of sleeping 2 to 8, if you include smaller children.

You do not need to own an RV Rental Agency to be in the RV Rental Business. In fact, the inventory at RV Gold is almost exclusively individually owned RVs. RV Gold is an agent for the RV owners. Let's say you would like to go into the RV Rental Business with one Class "C" Mini-Motorhome. Here are four possible ways to rent your vehicle:

  1. Do everything yourself. Receive 100% of the rental income.
  2. Do everything yourself, except finding the renter. Receive 60% to 75% of the rental income and pay 25% to 40% of the rental income as a referral fee to an RV Rental Agency. The amount paid to the agency depends on you check-in/check-out participation.
  3. Use a rental agency like RV Gold and share the work with the agency. Receive 50% to 60% of the rental income. The amount you earn depends on the amount of your participation.
  4. Do nothing yourself, except own the vehicle. Receive 50% of the rental income and pay 50% of the rental income to an RV Rental AgencyObviously, this is an oversimplification, but it does point out some of the options that exist and are currently being used.

There are two types of people who should consider putting a motor home into the RV Rental Business. First is a person who already owns a motor home, but only uses it a small portion of the year. Second is a person who has money and is looking for an investment that produces a return on their investment along with receiving the tax and other advantages of owning a motor home.

TAX Advantages Under our system of taxation, there are two types of businesses. A "For Profit" business has a profit motive. A Hobby business has a motive other than making a profit. The only lime it really matters what type of business you have is when your business shows a loss during any calendar year. Generally, losses will produce a tax benefit if you have a "For Profit" business, but not if you have a Hobby business.

Both the RV owner or investor could show a tax loss during a calendar year. An investor would only buy an RV and put it in an RV Rental Business and would probably not use the RV too much for personal purposes. It is more likely that an existing owner may put their unit out for rental to help defray the cost of ownership.

What if you are an existing owner, but your financial analysis shows that you will never be able to earn a profit from your RV Rental Business? No problem. You simply have a "Hobby" business. You still report your rental income, but your business expenses are limited to income earned. You are not allowed to deduct a business loss. This is still a good situation, because you have brought in money from the rental and you have deducted some expenses which would otherwise have been nondeductible personal expenses.

Section 179

Present tax law allows the cost of business assets to be deducted using depreciation. This deduction is allowed even if the asset is appreciating in value, such as, a rental house or commercial building. Also, IRS Code Section 179 allows for the expensing of all or part of new or used assets acquired during the year.

Recreational vehicles (including motor homes) are considered five-year property. We are permitted to use either accelerated or straight-line deprecation. If you purchased $200,000 or less of new or used assets during the year, you are allowed a Section 179 expense deduction of $20,000 in 2000, $24,000 in 2001, $25,000 in 2003, and the allowance goes up almost every year.

The best thing to do is to consult with your tax advisor and see which of these considerations fit your tax needs. Additional information is available from RV Gold upon request.

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