Can passive Investor deduct travel expense to go view a property?

6 Replies

My real estate investing has been largely passive and out of town investments, consisting of single family properties operated by property manager or I'm a limited partner in a syndicated investment controlled by the sponsor. If I decide to take a trip to go view a property just to see with my own eyes what the property's condition is, can I tax deduct the travel expense related to the out of town trip? Or does my status of only a passive investor prevent that from being a legit expense for tax deduction?

So long as the expenses are ordinary and necessary business expenses, then generally, yes. As a limited partner, you can take unreimbursed partnership expenses on your tax return. However, you may (or your CPA) need to review your partnership agreement to confirm that this is allowable.

@Russell Roberts  , 

Are we not talking about overnight stay right?

If not, you also need to define "Largely passive" The answer might be different if you are a limited partner as the LLC member in the LLC or if you are true hands-off limited in partnerships.

For the LP in the syndicated investment, I would keep track of the expenses as they would be added to the basis of your investment. Before Tax reform, you would deduct these are Misc Itemized deduction subject to 2% floor, but not anymore, so there is an argument that these expenses will give you a basis to offset your future gain or you could take more loss while holding the investment. 

Can you deduct travel expenses for a trip to view an existing investment property and potential new purchase of an additional investment property if everything is in my own name?

OR can I only deduct travel expenses if I'm set up as a business entity such as an LLC?

Originally posted by @Lauren Chiozza :

Can you deduct travel expenses for a trip to view an existing investment property and potential new purchase of an additional investment property if everything is in my own name?

OR can I only deduct travel expenses if I'm set up as a business entity such as an LLC?

LLC is not needed if you're visiting your existing rentals.

However, "potential new purchase" is trickier. If you're visiting an area where you do not have properties, just to explore the potential - such trips are not deductible. If you end up buying there, then those travel costs will be added to the cost of buying the property and end up slowly deducted over many years thru depreciation.

It may be possible to deduct travel to new areas thru LLCs/entities, but this is case-by-case.