How to Maximize Your Write-Offs of Travel Expenses

by | BiggerPockets.com

This article is an excerpt from The Book on Tax Strategies for the Savvy Real Estate Investor by Amanda Han and Matthew MacFarland. Pick up a copy from the BiggerPockets Bookstore!

A scenario we see quite a bit is investors owning properties in locations where they have family and friends. It is common for someone to own property in their hometown, where their parents have retired, or invest in cities where their kids and/or grandkids live.

Of course, if you own a property in a different state that is near a family member or loved one, odds are you would want to spend a few extra travel days there when visiting your property so you could have some quality time with those individuals, right? In those scenarios, how can you be sure to maximize your tax deductions as real estate investors? Let’s consider some options.

Real Life Example

We met Dave and Denise a few years ago at one of our educational Saturday brunches. They had both retired about five years earlier and started to invest in real estate almost right away. They had always wanted to get involved with real estate, but with raising two kids and working full-time, they had never really gotten around to doing it before.

They had purchased about a dozen single-family homes since their retirement and were looking to expand and buy a few more. To our surprise, Dave and Denise were not locals like most of our brunch attendees. They were actually from central California, and had driven almost five hours to Orange County to attend our brunch and sharpen their real estate skills.

Related: How to Build Wealth Now, Pay Taxes Later with a 1031 Exchange

Over the next year, they came to two more brunch events as well as a few real estate investor meetings (all in Orange County), and whenever we saw them, they would give us an update on their adventures and their grandchildren. It was a pleasant surprise when they called our office in late January and asked us to prepare their tax returns that year.

We realized that Dave and Denise were extremely organized when we got all their documents in the mail. Every property income and expense sheet was paper clipped with its respective 1099 and mortgage interest statements. Despite their great record keeping, however, we noticed that one huge thing was missing from their paperwork—travel expenses.

travel-for-free

Dave and Denise had properties in five different states. Because they were new to real estate investing, they liked to keep track of how each of their properties was doing. It was common for them to drive back and forth between central California, Arizona, and Nevada several times a year to take care of some of their closer rentals. In addition, they drove about 450 miles round trip several times a year to attend real estate conferences in Southern California.

Even though Dave and Denise did not provide us with any travel expenses, we knew they must have had some. Just based on our casual conversations with them and their attendance at our brunch events, we knew that this was a potentially big tax saving area they might have missed.

We called Denise to ask whether she perhaps forgot to include these expenses. Not surprisingly, her response was the same one we’ve heard so many times before: “I didn’t know I could deduct that.”

We explained to Denise that any travel expenses directly related to business or real estate could be tax deductible. As long as they are visiting their rentals, scoping out new ones, or attending conferences related to real estate, pretty much all their travel related expenses could be accounted for come tax time. In short, here are some common travel expenses that can be deductible when traveling for business purposes:

  • Car expenses
  • Train and airfare tickets, plus any baggage fees you incur
  • Taxi, subway, and bus expenses
  • Real estate and educational meetings
  • Overnight lodging (room service, Wi-Fi, tips, valet parking fees, even the cost of sending your suits out for dry cleaning!)
  • Meals (keep in mind that this is a 50% deduction, but when you need to eat out several times a day, this expense can add up very quickly)

When we began to explain these rules to Denise, she was very adamant that these deductions did not apply to her. She explained that they strategically picked their rentals based on where their kids and grandkids lived. When they drove to Los Angeles or flew to Pennsylvania, they were visiting their properties and attending meetings and seminars, but they usually also took time to see their family. This is why Denise felt their expenses wouldn’t be deductible.

Unfortunately, this is a myth we hear time and time again. Just because you stop in to see family or friends on your way to visit a rental property, that doesn’t mean the travel cost is not deductible. It is very possible to write off your travel costs, even if you take a day or a weekend to visit with family en route.

friends-family-financial-freedom
Related: 4 Different Types of LLCs and the Ways They Pay Taxes

After hearing Denise’s reasons for not sending us her travel expenses, we explained that as long as the primary reason for their trip is business, they can deduct the associated travel expenses. Furthermore, even if the primary reason for a trip was to visit family, and she spent only a little bit of time on her rental properties, some of her travel and out-of-pocket costs might still be legitimate tax write-offs.

Denise was shocked. She and Dan had been in real estate for five years and never realized how many deductions they were missing out on. She assumed that because part of their travel time was spent with family, none of their expenses could be deducted, when in reality, most of it could because the primary reason for their travel was their rentals. They often traveled if there was a problem with one of their properties, if they needed to meet someone, or they were looking for a new property. Generally, only after all the work had been taken care of would they head over to see their grandkids.

What Does This All Mean?

Contrary to popular belief, the IRS is not as terrible as one may think. A lot of loopholes are written into the tax code that taxpayers are invited to use. As you can conclude from Dave and Denise’s story, the IRS does allow tax deductions even when business travel includes certain personal benefits. As long as the primary purpose of a trip is business related, you may still write off certain travel expenses.

Many times, we’ve heard investors complain about not wanting to keep track of car and other travel costs because doing so is a hassle. However, by putting certain systems in place, your record keeping can be highly automated. Once you start really tracking your business expenses when you travel to take care of your properties, you will see how quickly they can add up. Remember, a penny saved is a penny earned, so hold on to your hard-earned money.

Any questions about travel-related tax write-offs?

Ask them below!

About Author

Amanda Han

Amanda is a CPA specializing in tax strategies for real estate, self-directed investing, and individual tax planning with over 18 years’ experience. She is also a real estate investor of over 10 years with a focus on long-term hold residential and multi-family assets across multiple states. Formerly a tax advisor at the prestigious accounting firm Deloitte in the Lead Tax Group, focusing on tax strategies for the real estate industry and high net worth individuals, and at an international Fortune 500 Company in the high-tech industry in the Corporate Tax department, Amanda’s goal is to help investors with strategies designed to supercharge their wealth building. Amanda’s highly rated book Tax Strategies for the Savvy Real Estate Investor is amongst Amazon’s best seller list. A frequent contributor, speaker, and educator to some of the nation’s top investment and self-directed IRA companies, Amanda has been featured in prominent publications including Money Magazine, Realtor.com, and AllBusiness.com. Amanda was a speaker at Talks at Google and is a 40 under 40 honoree by CPA Practice Advisor, showcased amongst the best and brightest talent in the accounting profession. Her firm Keystone CPA, Inc. was awarded a two-time winner of the Top CPA of Orange County Award by OC Metro Magazine. She is certified by the CA State Board of Accountancy and is a member of the prestigious American Institute of Certified Public Accountants (AICPA) with clients across the nation.

13 Comments

  1. Estelle Angelinas

    Would that apply for travel expenses from abroad? We live in Greece and are investing in MI, which is where I’m from and still have family and friends there. Also, since this is a family investment, with one son in CA, and the other in the UK, would it be possible to deduct their travel expenses as well- if we were all to meet in MI ? (Would forming an LLC, for the purpose of investing make things easier? )
    Thanks for this article. I’ll save it.

  2. Larry Brown

    My brother currently lives in a different state than I do and I am considering purchasing investment properties near where he lives. Is it possible to deduct my travel expenses associated with any trips I make to look for properties near where he lives? Are the expenses still deductible even if I don’t wind up buying anything in that location? If part of the time is spent looking at properties and part of the time is spent with my brother and his family what portion of the expenses are deductible? Note – I currently own several rental properties where I live.

  3. Teresia Sayler

    Great article!
    Also curious on how to write off the travel expenses when looking in a new location. Do I just add them to another existing rental property on Schedule E? This would really be helpful as it may take a trip or two to meet with new team members that will help me with acquisitions, set up property management, etc.

  4. Kurt Stresau

    Remember that your expenses have to pass a “smell test” from an auditor’s perspective if you get audited. An investor who owns 200+ units who flies from Texas to Florida to scout out a potential new market and goes to Disney for a day might pass that test. An investor who only has 1-2 units who tries to claim the same thing would have a much harder time justifying the airfare.

    The IRS is not evil, and the procedures are exhaustive and nearly incomprehensible to the average person. Just remember that whatever you claim you may have to defend. If you have heavy travel expenses on a mixed-purpose trip and are only claiming a modest percentage, that sounds better than if you try to claim the whole thing. Be practical, be reasonable, and be prepared to justify how/why you claim anything.

  5. Dawn Vought

    What about if you’re taking your child with you, because you can’t leave him home alone? For example, I would like to purchase at least one property (if not more) in Florida. I live in NY. If I was to take my 12 year old with me, with the primary purpose of why I’m taking the trip in the first place is to check out neighborhoods that I may want to invest in and meet with a realtor to see some houses, potentially meet with a contractor or other folks I may need, would that be deductible? While here I’m sure I would have to take a day or two out to take him to Disneyland. I’m assuming the Disneyland expenses would not be able to be written off, but what about the rest? Also, can I deduct the cost of my son’s plane ticket, for example?

    Where would those expenses be written off, assuming this is before a specific property is bought, so there’s no address that would be going on a Schedule E?

  6. Matt Mainini

    Let’s say you’re a new investor with a W2 job. As you start buying property out of state (air travel needed), can you deduct the travel? The reason I ask is because I’ve heard that you need to have your primary income in the business of real estate, such that if your W2 is a full-time job making you the majority of your money, the real estate investing is not tax deductible. At what point can you start claiming tax write-offs for the real estate business? Do you need an LLC or or can you purchase as an individual with the same tax incentives?

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