The Internal Revenue Service (IRS) allows taxpayers to depreciate recreational vehicles (RVs) using a straight-line method or an accelerated procedure. An RV is a fixed or long-term asset, meaning it is an economic resource that you most likely will use for more than a year. Depreciating an RV means spreading its cost over several years.
With straight-line depreciation, you spread the cost of an RV over a defined number of periods, keeping the same depreciation amount every year. For example, you buy a new RV valued at $50,000. The IRS allows a 5-year depreciation term on the RV. If you use a straight-line method to depreciate the RV, you will record $10,000 ($50,000 divided by five) in depreciation expense at the end of each year. At the end of the fifth year, the book value of the RV will be zero. Depreciation expense is a non-cash item, meaning you do not have to pay for it (unlike other expenses, such as rent, interest and groceries). In addition, depreciating an RV through a straight-line method is financially advantageous because it helps lower your taxable income and fiscal liability.
The Modified Asset Cost Recovery System (MACRS) is a type of accelerated depreciation method. The IRS allows owners to depreciate RVs that they purchased after Dec. 31, 1986. In an MACRS depreciation process, you typically allocate higher asset costs in earlier years. This method can be handy if you want to lower your taxable in the first few years after buying an RV. For instance, you buy a new RV valued at $100,000. You decide to depreciate the RV over four years through a "40-30-20-10" MACRS method. The depreciation expense for the first year is $40,000 ($100,000 times 40 percent). Depreciation expense for the second, third and fourth year is $30,000 ($100,000 times 30 percent), $20,000 ($100,000 times 20 percent) and $10,000 ($100,000 times 10 percent), respectively.
If you use an RV in a business operation, you need to record depreciation expense in accounting records at the end of each month or quarter. You also may record depreciation on an annual basis. To record depreciation expense on an RV, debit the depreciation expense account and credit the accumulated depreciation account. You will report depreciation expense in the statement of profit and loss. This statement is also known as P&L, statement of income or income statement. You also will record accumulated depreciation amounts in the balance sheet, otherwise known as statement of financial position or statement of financial condition. A P&L provides insight into your company's profit potential, while a balance sheet indicates its economic robustness.
Marquis Codjia is a New York-based freelance writer, investor and banker. He has authored articles since 2000, covering topics such as politics, technology and business. A certified public accountant and certified financial manager, Codjia received a Master of Business Administration from Rutgers University, majoring in investment analysis and financial management.