I am in the process of purchasing my first rental property (under contract) in Louisiana and my wife and I are on the hunt for more in various locations. With that being said, we are taking a family trip to South Padre Island and are interested in looking at properties when we are there. We will be driving there and staying at a VRBO condo with our two small kids. Since we will likely be viewing several properties, at least one property per day while there, what can we deduct as an expense for tax purposes? I suspect most mileage can be deducted (to and from South Padre and mileage to and from each property), some meals when discussing the properties, but not 100% on the lodging since our kids will be with us. Any guidance is appreciated!
I believe you can only deduct these expenses once you purchase a property. So keep track of expenses related to your search, but if you don't purchase, you can't deduct for them. Otherwise, we'd all be going on deductible vacations all the time. :-)
I know you'd like to believe that you can deduct it, but I'm fairly certain I'm in the ball park. Take a look at this other thread--specifically @Brandon Hall response which is the 4th post down. He is a tax professional, so I'd trust his statements.
@Nicole A. Thanks so much for linking to that thread - it's definitely enlightening! Looks like you are correct in your thinking!
@Nicole A. Here is a thought (although it may be a stretch). What if I were to find a Real Estate Investor Meetup in South Padre and attend their meeting. Would I be able to, at the very least, deduct mileage to South Padre (to the meeting) and back? Would that be any different than, say, driving to a Guru seminar? Or flying to a REI conference?
You may not be able to immediately expense the travel but it may be added to basis of the next property you purchase. It would then be depreciated over the useful life of the acquired property.
Let me clarify.
Normally you can deduct a trip to other state or city if you can " sandwich" your business meeting and operation within that and around the travel.
Usually, if you had a Business (Remember, IRS says that rental is not a business ) lets say a Retail Company, your traveling to other places to meet the clients or sales would fall under the operating expense of the business and would be deductible.
But RE tax is different. Unless, you have to massive RE portfolio, or have an operating company that books all the expenses of the massive RE activity, it is hard to deduct a travel expense. What I mean is if you have the rental activity that rises up to the level of Trade or business, than you would be able to deduct you planned travel to other states. But, just having few rentals is not enough.
1) Let's say You have one rental. All the cost related to that particular rental is deducted under schedule E or form 8825 under that one activity( each rental will be each activity).
2) Now, when you travel to another state for looking for an another rental, that expense is not related to the rental you already have, so will not be deducted from that activity. So, where would you deduct the this new travel expense because you dont have a schedule C business activity of big enough RE portfolio that incurs normal business expense ( wage,overall marketing, and so forth) The best you can do under this situation is what @Basit Siddiqi said, you keep track of that travel and those expenses could be added to the basis of the property if you have identified the property before making the trip (Just the market investigation trip is not added to basis)
Flipping and development:
You could possibly deduct the travel to another state if you have a flipping business:
1) Flipping business is reported in the Schedule C or as an ordinary business activity if you have an entity, and travel cost to acquire the other properties can be deducted if planned property.
Let me know if I confused you more.
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