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Can Real Estate Investors Deduct Travel Expenses? Yes, but . . .

by Charles Perkins on September 1, 2011 · 3 comments

  
IRS travel deduction and real estate investing

The Travel Deduction is Often Mishandled by Real Estate Investors
Many real estate investors do not understand the rules and regulations related to the deduction of travel expenses. While real estate investors are allowed to deduct travel expenses, the deduction is limited when compared to business owners.

Real estate investors are allowed to deduct ordinary and reasonable expenses related to investing in real estate; collecting rents, maintaining properties and other reasons related to property management. This can be properties next door, cross country or even in another country. I believe that most investors are aware of this.

The Appropriate Use of the Travel Deduction for Real Estate Investors

An investor is not allowed to deduct travel related to improving a property as a current expense. The cost of travelling related to improving a property must be capitalized as part of the improvement and deducted over the life of the asset. It is possible though, to greatly improve the timing of when you deduct depreciation. So many simply lump improvements as residential rental property which means it will take 27.5 years to fully recover these expenses.

An investor that travels to a region for the purpose of acquiring a rental property will be allowed to capitalize this cost as part of the investment, but this travel would not be a current year expense. An investor that travels to acquire a property in a region, but does not end up purchasing a property in the region will most likely be denied the deduction in any form.

If your real estate activity is a business then the standard for deductible travel is different. Travel in this case must be ordinary and necessary for the business. This is an important distinction. Many more purposes for traveling have a business purpose though they may not necessarily have an investment purpose.

The amount that can be expensed or capitalized will depend on several factors. Travel within the United States is treated differently than travel outside of the United States.

For further information on the travel deduction refer to these publications: Publication 463, Publication 527, Publication 535, and Publication 925

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{ 3 comments… read them below or add one }

Steve September 1, 2011 at 6:32 pm

Good to know,
Thanks for the tips

Steve

Reply

Charles Perkins September 1, 2011 at 10:00 pm

Your welcome. There are always seem to be some exceptions in the code.

Reply

Moe September 1, 2011 at 10:52 pm

Charles you are right. There is alway an exception.

Reply

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