Do I have to have a company to write off travel expenses?

10 Replies

I'm a new to-be real estate investor and I was wondering if I will be able to write off travel expenses if I do not own a company.

For example, I'm looking at purchasing a property outside my local market.  I do not currently own any investment properties yet (just my primary residence).  If I fly out to a city to check it out, drive around to get a feel for the neighborhoods, and maybe meet with a local company to check out available properties, can I write any of that off on my taxes?

@Kevin Trumbull - welcome to real estate investing! No, you don't need a company to write it off, it will come off as an expense on schedule E, once you purchase the investment property.  Not 100% sure on the expenses if you don't buy a property though.  I'll let others chime in on that.

- Tom

Expenses incurred to research an investment (including travel) and costs incurred to then buy it become part of the basis of the next item of that type that you buy.  

Say you do the following:

Travel to City A, B and C.  Six months later, you buy a property in City B.  Your travel expenses incurred for all 3 cities become part of your basis for that property.  If, within the same tax year, you then buy another property in City C, you could opt to split your travel expenses between the two properties, if you wish.

Note that the travel has to be PRIMARILY for investment research.  Going to mom's house for Thanksgiving and glancing through the local paper when you get there doesn't really count.  Going to Hawaii to parasail, surf and SCUBA with an afternoon for househunting doesn't really count either.  Traveling to another city to "get a feel for if it's right" doesn't really count.  You need to be actually researching specific property and generally pursuing a deal.

Save all receipts.  Save your communications with the local real estate agent, write down the addresses of properties you visited and other professionals you talked to.  Keep this documentation with all of your other tax receipts for the basis of your property.

Just a personal preference - Meals and Entertainment is too grey of an area for the IRS, so I personally do not write off any meals when I travel to look at property.  If I drive there, I write off mileage and hotel.  If I fly, I do airfare, car rental, hotel and gas.  I don't go overboard, but I can be pretty conservative with regard to my tax return.  Others are a lot more aggressive.

@Linda Weygant - I'm going to hijack this thread with a similar question...I'm trying to use MileIQ to keep better track of my mileage and they have the option to classify what the purpose of the business travel is. Let me run down my example from yesterday so I make sure I'm getting this right.

  • Drove from my house to interview a potential accountant.
  • Left the accountant to drive past and scope out 5 rental properties I'm interested in talking to my agent about seeing next week.
  • Drove from the last property home.
  • Drove from home to meet my realtor to go look at 5 flip houses and then drove home.

Since all of these are business related as part of my researching properties I can log them as business travel for the year and take the deduction? 

Does it matter for keeping track of the sub classification? MileIQ has the following options other than Meeting  none of them really fit my driving from yesterday.

  • Between Offices
  • Customer Visit
  • Meeting
  • Errand/Supplies
  • Meal/Entertain
  • Temporary Site
  • Airport Travel

Thanks for the wisdom and guidance on this!

Originally posted by @James Masotti :

Since all of these are business related as part of my researching properties I can log them as business travel for the year and take the deduction? 

If you are currently in real estate and this is part of your regular business, then yes.  If you're still researching to buy your first property, then possibly not.

Does it matter for keeping track of the sub classification? MileIQ has the following options other than Meeting  none of them really fit my driving from yesterday.

  • Between Offices
  • Customer Visit
  • Meeting
  • Errand/Supplies
  • Meal/Entertain
  • Temporary Site
  • Airport Travel

Thanks for the wisdom and guidance on this!

Is there no way to customize MileIQ?  If so, then I would add the following category:

Property research and view

If there's no customization, I guess I'd use Temporary Site.

Originally posted by @Linda Weygant :
Originally posted by @James Masotti:

Since all of these are business related as part of my researching properties I can log them as business travel for the year and take the deduction? 

If you are currently in real estate and this is part of your regular business, then yes.  If you're still researching to buy your first property, then possibly not.

Does it matter for keeping track of the sub classification? MileIQ has the following options other than Meeting  none of them really fit my driving from yesterday.

  • Between Offices
  • Customer Visit
  • Meeting
  • Errand/Supplies
  • Meal/Entertain
  • Temporary Site
  • Airport Travel

Thanks for the wisdom and guidance on this!

Is there no way to customize MileIQ?  If so, then I would add the following category:

Property research and view

If there's no customization, I guess I'd use Temporary Site.

James, I see that you drove from your home to meet with an accountant. Do you have a home office that qualifies as your principal place of business? If not, that mileage will be considered a personal commute which is non deductible. 

You may travel from the meeting with an accountant to another workplace and deduct those miles. The IRS views this as going from work location A to work location B which is a business expense. 

You must have a home office to deduct the mileage to and from your home.

https://www.irs.gov/publications/p463/ch04.html

@Brandon Hall - The link you provided sounds like I can deduct the mileage, because this is not a commute to my regular work location and it is outside of my metropolitan area (I live in Southern New Jersey, and the accountant is in Delaware and hour away).  I know I did not disclose this in my original question, so perhaps that changes things. Here is the specific wording I'm referring to:

"Daily transportation expenses you incur while traveling from home to one or more regular places of business are generally nondeductible commuting expenses. However, there may be exceptions to this general rule. You can deduct daily transportation expenses incurred going between your residence and a temporary work station outside the metropolitan area where you live."

@James Masotti being outside your metropolitan area certainly changes the facts and circumstances then. I'd say for that particular instance, you can deduct the mileage, however if the accountant were located in your metropolitan area I'd say you cannot deduct the mileage. Reason being that it would not be a "regular place of business."