Rental Property Travel Deductions

By Jason Watson, CPA
Posted Tuesday, August 27, 2024

Let’s talk about deducting your rental property travel expenses ahead of others. Sure, accelerated depreciation or repairs versus improvements are class favorites, but let’s check off the travel rental tax deduction issue first. As stated previously, all rental property expenses must be ordinary and necessary, and you must be operating your rental property as a business and not just an investment.

We need to provide a mini agenda to this section since there are several moving parts-

• Travel expenditures associated with research (start-up), acquiring, maintaining and improving a rental property are all handled differently. Five discrete scenarios since the start-up costs versus acquisition costs versus operating expenses varies depending on timing and having an existing rental property in the same geographic area.

• Defining your tax home and how a home office tilts the scales in your favor.

• Meals and lodging are inextricably connected to the eligibility of the rental property travel expense and deduction.

Travel to Your Rental Property Must be Meaningful

The IRS has smart people. Don’t laugh. Really, they do. If you think they don’t know that real estate investors and rental property owners like to travel and mix a little fun with business, then you might need to recalibrate your thinking. You own a ski condo as a short-term rental, and interestingly you only do repairs when there is a nice storm coming with fresh snow. Coincidental?

The primary purpose of the travel must be for business purposes. We will expand on what that means with examples in a bit. In IRS Publication 527 Residential Rental Property, the IRS states-

Travel expenses.
You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. You must properly allocate your expenses between rental and nonrental activities. You can’t deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. The cost of improvements is recovered by taking depreciation. For information on travel expenses, see chapter 1 of Pub. 463

Let’s back up a bit. It is a longstanding legal position within the Tax Court and the IRS that regular and continuous travel between your personal home and your work location is considered commuting and therefore non-deductible. Treasury Regulations 1.274-14 reads in part-

However, IRC Section 162(a)(1) also reads in part-

How do you reconcile this gibberish? There are two important fundamentals-

• Travel between work locations is generally deductible. The power of the home office with your rental property activities is critical.

• Travel away from your home (tax home) in pursuit of a trade or business is generally deductible.

We will discuss deducting your travel meals in a later section, but here is a sneak peek- to deduct meals in connection with travel to your rental property, you must be away from your tax home and require substantial rest (overnight travel). In other words, just because you can deduct your travel costs such as airfare or mileage, does not automatically mean your meals are deductible.

Travel Expenses Must Be Ordinary and Necessary

Your travel expenses must be ordinary and necessary, and not lavish or extravagant. Can you fly first class? Yes. Can you bring your spouse? Yes, provided they have a business interest in the rental property.

What is ordinary and necessary? In Strickland v. Commissioner, Tax Court Memo 1982-195, the Tax Court found that traveling 500 miles to two rental properties 80 times over a two-year period was not ordinary and necessary since the taxpayer could not demonstrate the business need.

Defining Your Tax Home

Your tax home is the location where you earn your primary income. Here is the word for word description from IRS Topic Number 511 Business Travel Expenses–

Travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. You can’t deduct expenses that are lavish or extravagant, or that are for personal purposes.
You’re traveling away from home if your duties require you to be away from the general area of your tax home for a period substantially longer than an ordinary day’s work, and you need to get sleep or rest to meet the demands of your work while away.

Generally, your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home. For example, you live with your family in Chicago but work in Milwaukee where you stay in a hotel and eat in restaurants. You return to Chicago every weekend. You may not deduct any of your travel, meals or lodging in Milwaukee because that’s your tax home. Your travel on weekends to your family home in Chicago isn’t for your work, so these expenses are also not deductible. If you regularly work in more than one place, your tax home is the general area where your main place of business or work is located.

Ok. Neat. How big is that geographical location? Is the rental property down the street outside my tax home? Unlikely. How about the one in a neighboring town? Perhaps.

Here is the IRS excerpt again-

Generally, your tax home is the entire city or general area where your main place of business or work is located.

This is certainly ambiguous, right? To make matters worse, and in the context of a home office, there is a derived (some would say contrived) 50-mile radius rule. It is derived from various sources-

• IRC Section 162(h) defines the local area for state legislatures as 50 miles.

• The federal government defines metro area for IRS employees as 50 miles (Internal Revenue Manual 6.550.1.1.7).

• Part 301-11 Per Diem Expenses, U.S. Dept of Interior says no per diem if your temporary duty (TDY) assignment is within 50 miles of duty station or residence. Many other government agencies including states have similar 50-mile rules.

Administering Your Rental Property from Your Home Office

A home office is simply another work location, where your commute is now from the bedroom to the basement. Travel between work locations is considered business travel and therefore deductible. The home office deduction in itself is not that thrilling, but when it changes the color of money and converts non-deductible commuting expenses into deductible rental property travel expenses, it has some teeth.

Home office considerations-

• Is being a Real Estate Professional strongly support a home office claim and therefore travel deduction? Likely.

• Does having a single short-term rental support a home office claim? Less likely than above, but not impossible. Regular and continuous are the legal thresholds as you’ve seen throughout this material.

• Can you claim a home office with a single long-term rental? Unlikely.

What about three rentals? Perhaps… and now we are getting more into a facts and circumstances argument which is good and bad. Good, because there isn’t a bright line. Bad, because someone might disagree with you, and you will need to craft and possibly defend an argument.

At the risk of repeating ourselves, there are two important considerations with rental property travel deductions-

• Travel between work locations is generally deductible. The power of the home office with your rental property activities is critical.

• Travel away from your home (tax home) in pursuit of advancing a trade or business is generally deductible.

For a deep dive or a double click or whatever the latest slang is on how to qualify for a home office with your rental property, see our home office deduction section. Riveting!

Travel to Home Depot or Bank

Your travel to the rental property might or might not be deductible depending on your facts and circumstances as compared to the above thresholds. So, while your drive to the rental property might be considered commuting expenses, your travel from the rental property to Home Depot, Lowe’s, Bed Bath & Beyond, Target, your local bank, your other rental, and any other location that has a business purpose or supports your rental property is generally deductible as operating expenses.

Here is another way to look at this-your rental property is a work location of sorts, and travel to another work location is no longer considered commuting. Could you always visit the hardware store before going to your rental property with the hope of reducing your commuting miles and increasing your business miles? Perhaps.

What do we mean here? The miles from your home (assuming no home office) to the hardware store is commuting. But the drive from the hardware store (assuming the stop had a business purpose for the rental activity) to the rental property is business travel and deductible as rental operating expenses.

Travel Expenses for Start-Up and Acquisition

Travel expenses associated with start-up and acquisition have four important distinctions-

• Start-up travel costs, before a specific rental property is identified, are generally immediately deductible under IRC Section 195. There are limitations. See our start-up costs and acquisition costs sections for more information.

• Acquisition travel costs in a new geographical location. These are generally added to the purchase price of the rental property, and depreciated accordingly. Yuck.

• Travel expenses for additional rental properties in the same geographical location are generally immediately deductible as operating expenses. Yay.

• Travel costs, after you already have a rental property but in a different geographical location, are considered a new business venture and therefore would be considered start-up costs if you have not identified the target rental property. Once identified, the travel costs change to acquisition costs.

So, travel expenditures could be start-up costs, acquisition costs or operating expenses depending on timing, geography and whether you already own a rental property.

Sidebar: Did you also notice the word change between expenses and costs? Costs and expenses are similar concepts, and they’re sometimes used interchangeably. However, a cost typically refers to the price paid to acquire an asset such as a rental property, while an expense is an ongoing expense or associated with operations. This also aligns with the term cost basis when speaking about assets.

We are repeating ourselves a bit here from an earlier section, but let’s run through the same examples anyway. First example- you travel to Miami four different times looking at various rental properties each time, and you eventually identify and close on a nice condo. Prior to identifying the target business or in this case, the rental property, these expenses might be considered start-up expenses and therefore deductible.

IRC Section 195(c)(1) reads in part-

Next example- you’ve identified a nice rental property, and you travel to Miami four different times to a) do an initial walk-through, b) be present for inspections, c) sign-off on a seller repair and contingency and d) final walk-through and closing. The costs associated with these four trips to Miami would be considered acquisition costs (not start-up expenses) and added to the purchased rental property’s cost basis and depreciated accordingly.

Next example- you travel to Miami to look for and purchase another rental property. This is considered a business expansion, and travel expenses are considered operating expenses. This is an important distinction since these expenses are a) not considered start-up expenses which have limitations and b) not added to the purchase price as acquisition costs with the slow tax benefit of depreciation. Rather, they are generally immediately deductible.

Final example- you’ve had your fill of Miami and decided to pursue a rental property in Key West. This is likely to be considered a new business venture and therefore start-up expenses might be leveraged but you also have the downsides of adding acquisition costs to the purchase price and subsequent depreciation. In other words, the travel costs associated with Key West would not be operating expenses like the example above.

What if you never purchase a rental property or make a real estate investment during the tax year? IRS Publication 535 Business Expenses reads in part-

If your attempt to go into business is unsuccessful. If you are an individual and your attempt to go into business is not successful, the expenses you had in trying to establish yourself in business fall into two categories.

1. The costs you had before making a decision to acquire or begin a specific business. These costs are personal and non-deductible. They include any costs incurred during a general search for, or preliminary investigation of, a business or investment possibility.

2. The costs you had in your attempt to acquire or begin a specific business. These costs are capital expenses and you can deduct them as a capital loss.

You have two scenarios here. Let’s look at some examples- you spend $4,000 on a real estate investment course, but you never identify the target business. Meanwhile December 31 comes and goes, and you fall out of favor with real estate. This $4,000 would fall under the first scenario, and therefore would not be deductible.

You identified a rental property, and you spent $4,000 on travel and legal fees. However, the deal falls through and you do not purchase another property. This would fall under the second scenario, and become a capital loss subject to those limitations.

What if you spent $4,000 on travel and legal fees in November, identified your target business or rental property in December, filed your tax returns in February with a nice $4,000 tax deduction because WCG CPAs & Advisors is wicked fast, but the deal falls through in April? Oh boy, a discussion certainly needs to be had. What if another rental property in the same area is identified and purchased?

For fun, let’s go back and spend $4,000 on a real estate investment course. However, you already own and operate a rental property. This could easily be considered an education expense that is tax deductible since it improves your current work skills. If you were launching another rental property purchase or some other real estate business, this same $4,000 could be start-up costs. It’s all a matter of perspective.

How about this one- you already own a nice short-term rental property in Miami but you also are snooping around in Vail. Why not, right? You spend $4,000 on travel and legal fees to check out the area but have not identified the target property to purchase. Time goes by, and you back out of the Vail market. This $4,000 is lost as a tax deduction since you never started your business (purchased a rental property), nor can you consider it an operating expense for your current short-term rental for lack of business connection.

Our apologies for the slight digression.

Travel Costs with Research

What if you travel to Miami, Hilton Head and Key West, and then finally find and close on a real estate investment in Miami. Do the Hilton Head and Key West travel expenses get added to the Miami rental property? Short answer, No because they were different geographical locations.

Travel Expenses During Improvements

What if the purpose of the travel was to improve the rental property? Let’s go back to IRS Publication 527 Residential Rental Property which states-

Travel expenses.
You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. You must properly allocate your expenses between rental and nonrental activities. You can’t deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. The cost of improvements is recovered by taking depreciation. For information on travel expenses, see chapter 1 of Pub. 463.

This little sentence below is a bit problematic, no?

You can’t deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property.

But the opening sentence below might be an escape hatch, right?

You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property.

As such, if the primary purpose is to improve the rental property, then your travel expenses must be capitalized by adding them to the improvement costs, and depreciated accordingly. However, if the primary purpose is to conserve or maintain the rental property, then travel expenses might be immediately deducted.

Let’s say you travel to your rental property to do a tenant walk-through at the end of their lease, and you also wanted to paint a few walls, then the primary purpose is to manage, conserve and maintain. When you arrive, however, you discover that the bathroom needs to be completely remodeled. You could argue that the bathroom improvement was a secondary or tertiary purpose of the trip.

Let’s add to this example- let’s say your hotel stay was supposed to be 3 nights to turnover the rental property plus paint the walls, but now your hotel stay is 7 nights to also complete the bathroom renovation. Conservatively, you could allocate 3 of the nights to operating expenses as travel, and the other 4 nights to the bathroom improvement. Aggressively, you could argue that the primary purpose of the trip has not changed, and as such all 7 nights are operating expenses.

Travel Activities

What activities are travel activities and therefore deductible? Here is a quick list in descending order of elegance-

• traveling to the rental property to handle tenants, maintenance and repairs (but not improvements since they are handled differently),

• traveling to Home Depot, Bed Bath & Beyond, Target and related stores to obtain supplies and materials for the rental property,

• the garbage dump where you haul refuse from your rental property,

• the bank where you do banking for your real estate activity,

• learning new skills to help in your rental activity, by attending landlord-related classes, seminars, conventions, or trade shows, and

• traveling to see people who can help you operate your rental activity, such as attorneys, accountants, or real estate brokers.

The Travel Deduction Itself

We will discuss mileage rates and actual expenses when using your personal automobile for travel in a later section. Keep in mind that lodging and travel-related expenses such as mileage to the airport, airport parking, car rental and hotels are usually eligible travel expenses. We will also discuss meals and per diem in a later section.

Rental Property Travel Deduction Summary

We covered a lot with travel deductions and rental properties. Here is a summary-

• Your rental property must be a business and not just an investment. In other words, it must rise to IRC Section 162 as they say. See our real estate and rental properties as a business section.

• Travel expenses must be ordinary and necessary, and not lavish or extravagant.

• Travel must either be outside your tax home or between work locations to be deductible as operating expenses. Your tax home is the entire city or general area where your main place of business or work is located. A home office is simply another work location, and travel expenses between work locations are deductible. Lowe’s could be a work location should you visit for rental property purposes.

• Travel for research might or might not be deductible as a start-up cost depending on whether a new business venture is started. See our start-up costs section.

• Travel for acquisition of a rental property is either added to the purchase price as acquisition costs and depreciated (yuck), or considered an expansion of a current business and deducted as an operating expense (yay). The distinction between these two situations rests on whether an owned and operated rental property exists in the same geographical area.

As a summary to the summary, travel expenditures could be start-up costs, acquisition costs or operating expenses depending on timing, geography and whether you already own a rental property. Here is a table that might be helpful as well-

There is a row missing, right? It is the row that represents-

• travel outside your tax home or

• between your home office and the rental property, or

• between the rental property and a place of business (think bank or Home Depot), and

• does not represent purchasing a new property or improving an existing rental property.

Those travel expenses are deducted as normal rental property operating expenses. We covered a lot. WCG CPAs & Advisors can help navigate the rental property travel expense and deduction.