No, determining your own cost analysis for mileage is not the correct way to utilize all of your expenses for the RV you are renting out. The original costs to restore the RV to an asset up to the date it was placed in service for rental use becomes the cost basis for depreciation and as you noted the cost recover period for depreciated is five years.
Once it has been placed in service any repairs are allowed to be deducted each year as well as any fuel, insurance and other expenses related to the rental.
If there are capital improvements, which is determined based on whether those improvements have more than a one year useful life (will they last more than one year), this becomes a new asset with a new five year cost recovery for depreciation. All other repairs that will not last more than one year are directly deductible expenses each year. You must keep your receipts for all the expenses that are ordinary and necessary to keep the RV available for rent. All expenses will be deductible in the year paid with the exceptions of capital assets described above.
Whether this should be reported on Schedule C (sole proprietorship) or Schedule E (rental activity) depends on the definition of 'Dwelling unit" as described in IRS Publication 527, page 17. Dwelling unit. A dwelling unit includes a house, apartment, condominium, mobile home, boat, vacation home, or similar property. It also includes all structures or other property belonging to the dwelling unit. A dwelling unit has basic living accommodations, such as sleeping space, a toilet, and cooking facilities.
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