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5 Strategies to Make Your Summer Vacation a Real Estate Tax Write-Off

by Amanda Han on June 5, 2014 · 18 comments

  
Tax Write-Off

As an investor, I love looking at houses where-ever I go. In fact, I am probably like most investors that always have real estate on the mind.

Whether traveling to look for properties or managing properties while on the road, a portion of all of my travel trips undoubtedly involve some sort of “work” related to my investing.

Contrary to popular belief, just because I happen to work on my real estate during my trip does not automatically make it a tax deductible trip.

Although it is possible to take a tax deduction for a part of all of your travel costs, if they are businesses related, you need to first be sure that you have everything in place to legitimately get the write off. Yes I did say legitimately. That means that if you get audited, you have the documentation and support to win the argument over the IRS.

The 5 Strategies Using Real Estate to Make Your Summer Vacation a Tax Write-Off

In order to make this possible there is some action that is needed on your part before you even take your trip. Let’s take a look at an example of how Judy, an investor, can maximize her travel tax deductions.

1. Schedule Appointments and Plan Meetings before Leaving

The sun is out and it’s time to play. If you think you can just hand out your business cards while you are on the beach in Florida to get a tax deduction, you are definitely wrong.

Related: 5 Tips For Maximizing Your Tax Income Deductions For NEXT Year

In order to make your trip deductible you need to schedule at least one business meeting or activity before leaving for your trip. The IRS wants to know that you had a “prior set business purpose” in order to write off your travel costs.

For example, if you “happened” to attend a real estate conference while in Florida, that does not mean you went to Florida for business purposes. On the other hand, if you pre-registered for this Florida conference, then you can show that the reason you went to Florida was to attend this real estate conference.

This is a subtle but very important distinction. The best way to document this is with email. Emailed registration paperwork or receipts are strong documents that can help substantiate your travel “purpose.”

Example: Judy wants to take a trip to sunny Florida. If she schedules multiple meetings and appointments with her business contacts and colleagues or conducts a presentation meeting to a group of other investors, the IRS can accept her trip as a tax deduction for her business.

2. On-The-Road Expenses

If you want to deduct all of your travel expenses (i.e. flight or driving costs) then you need to be traveling primarily for business. You can deduct 100% of your travel expenses according to the IRS as long as more than fifty percent of your trip was business related.

Example: Judy was traveling on a five day trip. For her, three out of five business days she spent in Florida were related to her investing business. Since more than 50% of her time was spent on real estate investing activities, then the entire cost of the would be tax deductible to Judy.

3. Every Day Counts for Your Travel Expenses

Each day that you are traveling provides you opportunities to capture tax deductions. 100% of your hotel, gratuity, car rental and 50% of your food costs may be tax deductible.

Example: Judy is away on a business trip for four days and has meetings planned with investors most of those days. She can deduct the costs for her meals and entertainment for those days. In fact, even if Judy decided to eat by herself on these days those would still be tax deductions if the primary reason for this trip was related to her investing business.

4. Throw Away Those Receipts:

A lot of people may not know that the IRS does not require you to keep receipts for certain expenses under $75 (except for your hotel). Just because you do not need receipts, does not mean you don’t need to track your expenses because odds are high that if you don’t track your expenses, you will forget about them by next April’s tax deadline.

Example: Make sure you include expenses such as laundry, dry-cleaning, tips, parking, meals, entertainment, etc. Even the first dry-cleaning bill you receive when you return home may be fully tax deductible.

Related: The New Rules Of The IRA Rollover: How To Protect Your Money From The Taxman’s Penalties

5. Include a Weekend in Your Travel Plans

If you have a business meeting on a Friday and schedule another meeting on a Monday then you may be able to legally deduct your entire hotel and on the road expenses for the weekend in between.

Example: Judy has a presentation with potential investors on a Friday and scheduled follow up appointments with the investors for Monday. Although she did not have any meetings on Saturday or Sunday she can deduct any on-the-road expenses and hotel costs she incurs during the weekend.

Taxes can be fun when you find creative ways to save more of your hard earned money. Before you take that vacation this year, plan ahead and look for ways to turn it into a business trip.

Do you have any awesome tax-saving stories?

Be sure to leave your comments below!

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{ 18 comments… read them below or add one }

Lisa Phillips June 5, 2014 at 2:59 pm

Nice! I will start looking into this “structuring” information a little more strategically. Thanks Amanda!

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Amanda Han June 5, 2014 at 3:05 pm

Yes!! Do that before your next trip =)

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Sara Cunningham June 6, 2014 at 1:28 am

Great tips Amanda. Since we moved to Italy I have been able to use this strategy every year. As I always look at houses, meet my property managers, my contractors and banker every time I visit and plan well in advance we have been able to fit in visits to families and friends over the weekends we are in town as well.

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Amanda Han June 6, 2014 at 10:35 am

Sounds like you are on top of it!

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Sharon Tzib June 6, 2014 at 9:06 am

I knew a lot of this, but not that you don’t need to save $75 or under receipts. I really love the format you used for this one too – wonderful real life examples. Thanks as always Amanda!

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Amanda Han June 6, 2014 at 10:37 am

Thanks Sharon! Glad you liked this non-traditional format =)

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Jennifer June 6, 2014 at 2:38 pm

I find this to be unethical. Yes, I understand that you may be following the letter of the law, but the practice of bundling vacation costs with legitimate business expenses seems morally wrong to me. I doubt an honest person would want to engage in such deception.

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Amanda Han June 6, 2014 at 4:15 pm

Thank you for your feedback Jennifer. To be clear, any tax deduction are only for business related expenses. So for example if someone is in southern CA for a business conference and one of the days they take their kids to disneyland to meet Mickey Mouse, the Disneyland tickets are personal in nature and never deductible. But if the primary reason for visiting was for business purposes, then those business related expenses are allowed by the government and taking those would not be “dishonest:…..at least not in my mind =)

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DL Martin June 6, 2014 at 10:40 pm

Amanda;
As always, thanks for the tax tips. I know that your time is valuable and I want you to know that MANY of us here really appreciate your ongoing effort to contribute to the BP Community via your professional expertise/knowledge.
I have a quick, general follow-up question.

Say you owned a rental property in City A. City A also happens to be a vacation destination city. When you are in City A, you of course check up on the property and tend to any issues that need addressing (property management stuff).
In your estimation, what is an acceptable number of days to be in City A (during each visit) to perform your property management duty? And how many times per year would be an acceptable number of times to visit City A for property management issues?
I will assume that you can’t claim a monthly property management expense (from a local City A property management company) AND also write of quarterly trips to City A for property management duties. (I’m guessing that it is one or the other).

Thanks
DL Martin

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Amanda Han June 9, 2014 at 10:34 am

Hi Martin:

Thanks for your comment. Good or bad, there is no “acceptable” of standard number of days…it all comes down to reasonableness and pre-determined purpose of the visit. Reasonableness can vary by property as well.For example if you had a property under-going rehab it could make sense for you to be there for days, weeks, even months to oversee the rehab. Alternatively, if there is a tenant in there and nothing really for the property to do then that would not make sense to be there that long.

I have a client who was on the board of directors for the co-op where his rental was part of his duties was to visit the building once a month and for him this was all business travel.

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Sharon Vornholt June 7, 2014 at 8:33 pm

These are great reminders Amanda for things we know, but tend to “forget” until we get a reminder. I’m like you; I want to look at real estate everywhere I go.

Sharon

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Tiffany June 8, 2014 at 9:48 am

I was wondering if these rules only apply to business owners? Can employees use their business trip as a tax write-off as well?

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Tiffany J. June 8, 2014 at 8:44 pm

This is a great article, covering many of the questions I’ve had. I’m a fairly new investor, with one rental in a vacation destination and one local rental. When we purchased the “vacation rental” years ago, we spent every day with our realtor (planned in advance), yet I couldn’t find the tax laws to support writing off our expenses. Does this only work for investors with an established business? I’m also new to Bigger Pockets, so I’m going to take a look at other articles. I hope this topic is covered – how to set up your business so that you can deduct expenses that aren’t specific to your existing rentals. Thanks for this information!

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Amanda Han June 9, 2014 at 10:36 am

Hi Tiffany:

Thanks for your comment. No you do not need to have a business entity to deduct travel expenses. As with any other expense, the amount incurred needs to be necessary for your business. So if you purchased the vacation rental then your expense relating to that property should be deducted against that rental income on your Schedule E. Sometimes we have overhead expenses that are not property specific (ie: membership cost of bigger pockets). For these, you can either allocate it between your various rentals.

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Deen June 12, 2014 at 10:18 pm

Yes! it’s a known fact that you can take a vacation and have it deducted as well. However, you have to make sure you document all the business transactions on that trip for tax purposes and record.

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Shaun June 15, 2014 at 12:11 am

Actually going on a vacation this month and plan on writing off a fair amount as a business expense.

My sister in law lives ~2300 miles away. We are going to visit her. I happen to own several rental about 2/3 of the way there. They are NOT in a vacation spot! However they are in a perfect area to stop for since it is not a 1 day drive (at least not with kids).
The plan is to drive there get in late to the hotel and crash then do stuff the next 2 days and leave early the next day for the rest of the trip. I plan on visiting all my properties as well as having meetings with my property managers and at least 1 other realtor. On the way back we will stop for lunch there with an investor colleague that is also the secretary of the local landlord association.

The plan is to write off the mileage to there and all the driving around to the various appointments. Write off the hotel there and all the travel expenses getting there. Write off all the meals getting there and while there. We will do some family activities in the mornings before my appointments and in the evening after them, do not plan on writing those off (Unless a professional colleague joins us, which I am not expecting).
I do not plan on writing off any mileage or expenses going the rest of the way to the sister in laws. We are staying with her so no hotel but I would not plan on taking that even if we were.
On the way back no mileage or expenses getting back to where the rentals are. Stop in the city for the lunch appointment I mentioned. Write that off and all the miles and expenses getting home as we would have had all of those if we went right home without taking the actual vacation in the middle.

I believe this is all legitimate and not really even aggressive.

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Ana Nomys July 10, 2014 at 5:18 am

Amanda,

Awesome tips. Now a BIG fan and follower. Look forward to learning more strategies on how to keep more of my hard earned money LEGALLY. FTR I love America and pay my fair share of taxes and truly believe if there are legitimate ways to lower my tax liabilities there is nothing immoral about it.

Thanks
Ana

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Amanda Han July 14, 2014 at 6:19 pm

Thanks for your comment Ana and thank you for reading!

Reply

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