Creative way to write off travel expense?

Question

I live in the DC area and am a landlord, but went to LA to see if there were good property deals. I didn't find any good ones, but because of the trip, I've decided to buy something near the DC area. Can I write-off the travel costs to LA (as a business expense), even though the location of the purchase is in DC?

Bill Walston · Answer

@John S., @Russell Brazil is correct.  If you traveled to LA but didn't buy a property, as a general rule, the travel expenses are not deductible.

James Triano · Answer

@John S.

Yes, even if you did not buy the property, you should be able to deduct these expenses.  Again, this is obviously subject to the fact that you had everything planned ahead of time and have a paper trail, etc.

Something to note: if you're simply reporting this income as part of your personal tax return vs. reporting this on a business tax return, you may have a more difficult time in the event of an audit.  If you're going to be doing some of this activity in the future (doesn't seem like it according to your original post) you should send up a business entity to record this activity in.  It will keep a much cleaner line between personal/business expenses.

John Woodrich · Answer

As a disclaimer I didn't read the other responses above.

If you claim the deduction on your return it will likely go through.  You will note however that IRS form Schedule E (where you report rental income) does not have a line for Travel costs because they are not typically ordinary or necessary expenses in a rental activity.

Here is an IRS explanation and you can see how it fits your situation:

https://www.irs.gov/taxtopics/tc511.html

I have had many clients ask this question over the years, if you are audited it is the first thing they will look at and likely the first expense they throw out.  If your trip is more business than personal you will win but realize the agent will look at it from the standpoint that you likely left DC in the winter for a warmer climate.  Did you bring your family?  Would be a big strike the wrong way.

Rant over - you likely have no grounds for taking the deduction but if you claim it you will probably succeed.

Jeff Filali · Answer

I'm sure there's many on here who would write it off and others who wouldn't dare. LOL

If you ask the same question to 3 different CPA,s you'd probably get 3 different answers:

1. NO; Not unless you actually purchased a property;

2. MAYBE; Followed by 10 questions about exact details of the trip;

3. YES; Call on a few properties you "looked at" and put in written offers through an agent.

John S. · Answer

@James Triano, @Cynthia Hartley - thanks for your insights. Based on your understanding, can I claim these 'start up' costs even if I didn't buy a home at the travel destination this year, or do I have to wait until after I've purchased (as mentioned by other responses)?

James Triano · Answer

@John S.

I agree with @Cynthia Hartley.  I am not a CPA but do work in Finance/Corporate Accounting.  When we set up a new business unit under our corporate umbrella, even without $1 of revenue, we absolutely deduct all travel expenses related to "start-up".  So, as long as this trip was 100% business and it was planned to be so well in advance (make sure you have the paper trail), then yes, you can deduct it.

Cynthia Hartley · Answer

Hi @John S. It is my understanding that if you went with the intent of engaging in RE business and in doing so you scheduled appointments in advance of your trip and you have a paper trail that can prove this e.g emails, then you can write off a portion of your trip. If it was purely business and you engaged in business only while you were there, then it would be 100% deductible. If you spent 4 hours on  your first day meeting with a RE agent and seeing houses and the rest of the time you were on vacation, then only 10% of your trip could be deducted.  However, you do have to demonstrate that prior to your trip you had the intent to engage in business.

Creative way to write off travel expense?

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