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We have just received an audit notice personal taxes

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we have just received an...
we have just received an audit notice for our personal taxes for unreimbursed employee expenses. I own the company and purchased an motorhome a few years ago to use in sales travel across 7 states. for the first few years I just took a standard mileage deduction but of the last two with mimimal use of the motorhome I converted to a 5 yr depreciation and actual expenses. It is used 100 percent for business the last two years and very little due to cost of diesel fuel and mechanical issues. Will the IRS permit this depreciation? Since it was 100 percent business use I did not log the few miles driven . It is mainly been garaged the last two years.
Submitted: 1 year ago.Category: Tax
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12/8/2015
Tax Professional: Lev, Tax Advisor replied 1 year ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,164
Experience: Taxes, Immigration, Labor Relations
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The main question is - how that motorhome used fro business purposes?

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Customer reply replied 1 year ago
What?
Tax Professional: Lev, Tax Advisor replied 1 year ago

You mentioned that the motorhome was 100 percent business use - so question is HOW it was used?
What exactly was that usage?

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Tax Professional: Lev, Tax Advisor replied 1 year ago

To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business.

So - the first step is to proof the business use - and that the use of the mortorhome is both ordinary and necessary in your business.

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Customer reply replied 1 year ago
Ok. I own a sales engineering company and make sales calls across multiple states. It requires overnight travel. As an option to paying the cost of a hotel, restaurant costs and travel I often tow a business car with the motorhome and stay in a given area central to my customers. I stay in the motorhome of course often in a Walmart or Sams parking area overnight for convenience to the highways and use the car to make the calls. After a few days sales calls I tow the business car back to my home.
Tax Professional: Lev, Tax Advisor replied 1 year ago

So - the motorhome is used mainly as a dwelling for overnight travels - in this case - it might be not appropriate to use a 5 year depreciation...
Most likely - the auditor will change depreciation to 27.5 year period - assuming they would not abject the business use.

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Customer reply replied 1 year ago
Well it's used as a vehicle for business travel to and from central locations - about 100 miles per day on average. It is out over 30 days or even close to that at a time which I believe is the time one has to stay in it continuously to consider it a dwelling. Is that when the 27 years come in.. Most info I have send on deducting RVs states 5 years.The other factor is that I took straight mileage on it for the first 3 years or so with a per diem deduction for food and lodging . Over the last two years it has been use very little due to cost of fuel and mechanical issues. That is why I went to a depreciation method.
Customer reply replied 1 year ago
Sorry I meant to say = It is NOT our over 30 days--- at a time
Tax Professional: Lev, Tax Advisor replied 1 year ago

There is no clear determination - but the IRS is using the term "predominantly to furnish lodging"
I may not say what exactly the auditor will imply - but as soon as you mention the motorhome was used for lodging - the question about depreciation period will come up.
If the motorhome was clearly used as a transportation as a car - there woudl not be issues with depreciation period - but in this case the question woudl be - why you used an expensive motorhome and not a regular car?
For instance - if you used it to transport and store business assets you used during such travels - that might be accepted - but if you just use it as a personal transportation - the question will likely come if that is an ordinary expense? Is such use common and accepted in your trade or business?
I woudl suggest that you to be prepared for such questions.

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