What expenses are deductible when traveling out of town to look for investment property? What evidence must you provide IRS that it is a legitimate search for property?
well I am not a tax expert by any means but I have had a similar conversation with my accountant recently. If your only reason for the out of town travel is for looking at property, document any realtor you met with and any properties you looked at and you can write off all of the travel. If you are traveling for another reason like a vacation and you are just looking at property casually, I would keep track of how much time you spend looking at the properties and give that info to you accountant and they can determine what percent of the trip can be written off.
I am not an tax expert, either. But you can refer to the BP Podcast featuring Amanda Han on this issue. The deduction criteria are 1) business is at least half of the time during travel; 2) business affairs arranged previous to the travel.
Yet, I still have a question. I think it generally makes sense to deduct travel and search for properties, if you have a LLC or corp. Intuitively, if you do not have a LLC or corp, it is hard to justify the deduction. Without a LLC or corp, maybe you can deduct the travel that leads to the purchase of a property, but I find it is hard to justify deducting travels that did not result in anything. Is that the case?
@Ken Teng imagine you were buying stocks. Do you have to start an LLC to buy stock to be able to deduct your research expenses (e.g. Newsletters, investment club memberships, trading platform access fees?)?
Same concept. Needs to be pre planned and over half of trip duration used for investment purposes. If less than half, can only deduct expenses for those days (meaning no airfare and can only deduct lodging for those days devoted to investment research).
@Marco G. You are right. Deduction does not require a LLC. But consider the following scenario:
I am interested in two properties at Place A and B. I traveled to Place A, investigated, and then bought the property. Then I traveled to Place B, but after investigation, I decided not to pull the trigger.
With an LLC, it is easy to deduct both trips, because both trips can potentially benefit the LLC. However, without an LLC, you can justifiably deduct trip A against the bought property. However, I find it hard to deduct trip B. Against which property can I deduct trip B? Against Property A? They are not related. On the other hand, you do not have any property bought, thus no income directly generated from trip B. So I guess IRS won't allow you to deduct trip B.