Anyone combine business trips with personal trips?

Question

Hello group,

As I grow my business and become more in love with Rentals, I thought about looking at other markets in areas that I also like to visit.  I assume I can count these trips as business trips if I have the proper documentation showing what I've done at that location, and only the portion of the trip (transportation and lodging being the biggest) can be counted towards the business expense.

Not asking for tax advice per se, just curious if others do this or any personal experience.

thanks in advance

Linda Weygant · Answer

The issue here is investing in an asset class you are not already invested in.  That includes a geographic shift.

In general, research for a "new business" is not deductible until you actually start that business.  Travel for a business that you are already in is deductible.

But I'm already a landlord, Linda.  So easy peasy - I can deduct it all, right?

Not so fast....

The IRS looks at Asset Class and Geographical Area when determining whether or not it is a New Business.

If you are normally in residential rentals and you decide to invest in commercial space and you have a ton of market research expenses involved in that, the IRS has determined that this is a diverse enough business that those expenses are NOT deductible against your current business income.

Instead, what you must do is accumulate those expenses until you actually enter that business.  In this example, when you buy your first commercial property, those research expenses are included in the basis of the property and amortized over the life of the property.

Yes, there is a Start Up provision that you can also utilize, but that's beyond the scope of this answer.

The same goes for a major geographical shift.  Looking at property in a vastly different geographic area or very different market works the same way.  You accumulate those expenses (including the travel).  Then if and when you invest in that market, you can work through the Start Up vs Basis Increase decisions from there.

So no, you can't jet set and travel around the country and write those expenses off against your current business.  However, you should definitely keep those receipts and accumulate those expenses so that if you do enter that market, you can still reap those deductions.

Christopher Cousin · Answer

@Andy Basler As always, I say consult with your CPA as individual circumstances vary.  With that said, in general, any activity that is ordinary and necessary in the operation of your rental business would be deductible, and documentation is key here.  In order to maximize your potential deductions, aim to have at least half of each weekday be devoted to business activity.  If you are able to prove this, then the entire trip is considered a business trip, and the entire portion of your transportation and lodging becomes deductible.

Andy Basler · Answer

Thanks guys, all makes sense.