Travel is inevitable in the real estate business. Whether your investment property is minutes away or miles away, you’ll often have to travel to and from your property to conduct inspections, coordinate repairs, and more. Unless you’ve enlisted the services of a property management company, you’ll likely have to pay for these costs out of pocket. With that said, you’ve undoubtedly wondered whether or not you can deduct your travel expenses from your taxes – after all, who wouldn’t want to be able to save even a cent? The answer to that isn’t so straightforward, as it depends on the situation.
As a rule of thumb, travel expenses may be offset from your taxes, but there are certain rules you need to be aware of. In this article, we’ll go over everything you need to know about travel expenses and real estate taxes.
Are Travel Expenses Deductible?
Yes, but not all. If you have to travel to your rental property, you’ll likely be allowed to write off your expenses from your taxes, like the costs of lodging, gas, and so on. It’s important to note that it pertains only to the cost to maintain, not to improve, your real estate investment. For example, if you visited your property to oversee a backyard improvement, you won’t be able to recover the expense via your taxes.
For the expense to be deductible, the purpose of the trip must have been exclusively for business. You can allocate time for fun, but you shouldn’t spend the entire time doing things that aren’t related to your rental. So, if you plan a six-day trip but only spend two to oversee repairs, the expenses wouldn’t be tax-deductible.
Keep in mind that the Internal Revenue Service (IRS) doesn’t allow property owners to write off expenses if there was no reason to take the trip in the first place. For instance, there’s absolutely no need to go on a five-day trip if all you have to do is to change the locks on the door – you can ask a property management company to do that!
To determine if an expense is tax-deductible, the IRS contemplates if it’s ordinary and necessary. “Ordinary” refers to how fair an expense is – for example, it wouldn’t be ordinary to book a five-star hotel or take a private plane to visit your investment property. On the other hand, “necessary” answers whether or not you had to incur that cost at all. Let’s say that you opt to drive to your property and you end up spending more than you would have if you’d gotten on a plane. The IRS will probably wonder why you couldn’t just buy a plane ticket.
Is Local Travel Tax Deductible?
This is where it gets slightly confusing. If you’re traveling to your real estate investment that’s within your tax home (in other words, where you live), travel costs can be tax-deductible but only if you have a home office. But if you don’t own a home office, the IRS will consider your “trip” to and from your property as your daily personal commute because your rental property will function as your “workplace”.
There is a way around this. If you don’t have a home office, you can still claim a tax deduction by first traveling to your actual workplace, and from there, to your rental home. That way, you’ll be traveling from one office to another “office”.
What Travel Expenses are Deductible?
Below are the travel expenses that you can subtract from your taxes:
- You can deduct the airfare, train fare, etc. that you spend to travel to the rental property. If you opt to drive to the rental property, you need to calculate how much you can deduct by following the IRS’ standard mileage rate. You can also deduct the expenses for taxis, rental cars, etc. but make sure you choose a mode of transportation that isn’t over-the-top.
- You can write off half of the total amount that you spend on meals. This includes the meals you pay for at the airport, and for the rest of the days that you’re conducting rental-related activities.
- If you’re staying at a hotel or Airbnb, you may be able to deduct the expenses as long as they aren’t too excessive. In other words, you won’t be able to deduct the cost to stay at a five-star hotel.
There are other expenses that you can deduct from your taxes, so be sure to partner with a reputable property management firm for more information. They can determine whether or not a certain cost can be written off.
Are Travel Expenses to New Markets Tax Deductible?
Yes, but only if you end up buying a property in the market that you traveled to. If you don’t, you won’t be able to write the expenses off from your taxes.
For example, if you travel to California to look for a prospective rental property, and you actually end up purchasing one of the properties, you’ll be able to deduct your travel expenses when it’s tax time. However, if you never invest in a property in that market, you won’t be able to benefit from a tax break.
Are “Side Trips” Deductible?
While you can’t deduct the costs incurred on “side trips”, you can deduct the costs that “overlap” with your investment-related travel.
Let’s say that you visit New York to oversee repairs on your condominium unit. You plan a five-day trip and spend every day doing rental-related activities during the morning. However, you also spend the nights eating out, going out, and so on. As long as you aren’t staying at The Plaza or The Ritz, you may be able to deduct your hotel expenses because your trip was primarily for business. But you won’t be able to deduct the expenses you incurred for exorbitant dinners, field trips, and so on.
In short, even if you spend some of your time for fun, as long as your trip was called for, you’re in the clear with the IRS.
Need Help With Your Property Taxes?
At Luxury Property Care, we have an expert team of CPAs who are prepared to help you when tax time comes. We will make sure that you keep detailed records of your travel expenses so that you can provide the IRS with the supporting documents it needs. We know that tax season can be confusing, but with us by your side, it will be a no-brainer.