Expenses incurred finding a rental property deductible?

2 Replies

Hi all, are expenses incurred searching for and/or purchasing (going to the closing) rental property tax deductible...whether that be mileage, or airfare to another state?

@Matt McCue

We have seen people treat these expenses differently. I understand the logic behind why people just deduct them as overhead, but technical rules prevent doing so. As a professional, I have to let you know what is the correct way to do it. 

The cost of investigating the market before actually pinpointing the property is considered personal for most individuals. 

Even after you have some rentals, the cost of investigating another market before pinpointing is also considered personal in nature, for most of the individual. 

All the cost after you have identified the property can be capitalized once you buy the property and depreciated over time. Cannot deduct right away. 

Practically, people just deduct the cost in their schedule E as overhead. If audited, that might be disallowed. 

As your investment gets bigger, it might be worth it to treat them correctly. For now, do what you and your tax professional are comfortable with.