From giving tours to prospective tenants to maintenance work to performing inspections, many aspects of a landlord’s job often need to be conducted on the premises. Fortunately, the IRS allows landlords to deduct the expenses of traveling to and from their rental units and other business-related activities. But since travel expenses are one of the most misused tax deductions, it’s critical for rental property owners to know and follow the rules when filing their tax returns. The following guidelines should help you stay in compliance.
Travel by Car
Most landlords who live in the same area as their rental property do the majority of their business travel by car. The IRS allows this mileage to be included in tax deductions, but only if it’s for “ordinary and necessary” business purposes. Showings, meeting with a contractor for repairs, and regular maintenance tasks are the types of purposes that are considered valid. But keep in mind that day-to-day commutes and detours for personal errands can’t be counted as business mileage.
There are two ways to report and deduct business mileage, which require different levels of record-keeping:
Standard Deduction. The standard rate is the most straightforward and commonly used method of calculating mileage expenses. The IRS adjusts the rate each year to reflect changing economic conditions. To calculate the deduction, the current rate is multiplied by the number of miles driven for necessary business purposes during the relevant time period. Landlords should use a physical driving log or mileage-tracking app to record the date, purpose of the trip, odometer readings at the beginning and end, and starting and ending locations.
Actual Expenses. Taking the actual expense deduction requires far more record-keeping but may result in higher savings for vehicles that are expensive to run. In addition to mileage, landlords need to track all vehicle-related expenses in detail, including gas, oil, tires, repairs, insurance, and depreciation. The deduction will be calculated using the proportion of the vehicle’s mileage that was used for business purposes.
Correct details are essential to keep your records accurate and verify your tax return when needed.
Other Methods of Travel
When traveling out of town, other expenses can be deducted as long as they’re reasonable and the trip is primarily spent on business purposes. The IRS sometimes adjusts the rules, but the following travel expenses are typically allowed:
- Travel to and from the airport, bus station, or train station
- Airfare or bus or train ticket
- Luggage fees
- Lodging
- 50% of meal costs
Remember that the purpose of your travel must have a logical connection to your business in order to deduct the expenses. Keep your records up to date by tracking specific costs along the way and hanging onto receipts.
Travel expenses that fall outside the range of “ordinary and necessary,” such as travel related to capital improvements or a new market where you don’t currently own property are handled differently and may require depreciation. When in doubt, consult an accountant to verify that your deductions are allowable and avoid hefty fines. But when used correctly, travel expense deductions can counter-balance costs like airfare, lodging, gas, and wear and tear, giving landlords an opportunity to maximize their profit margins.
About Rentals America
Rentals America provides full-service property management for residential rental properties. Our team is completely dedicated to property management and we’re here to help landlords navigate the rental market.
