When you own a rental property, there's a long list of potential deductions you can use to lower your taxable income. For example, you can take a depreciation deduction each year. And you can deduct the costs of owning and operating your property, such as property management fees, mortgage interest, rental property tax, insurance, and maintenance expenses, just to name a few.
If you have to travel to get to your properties, you may also be able to deduct your travel expenses. With the emergence of online rental platforms like Airbnb, VRBO, and others, it's easier than ever to own and operate investment properties that aren't in your local market.
However, there are some rules you need to follow before you do, so here's a rundown of what landlords should know about deducting rental property travel expenses.
Are travel expenses deductible for landlords?
The short answer is yes. If you own and/or manage rental properties that are outside of your local market, and you travel overnight for the purpose of managing, maintaining, or performing other tasks related to the properties, you may be able to deduct your reasonable expenses related to the trip.
One key point before we go any further is that the IRS tends to take a closer look at deductions that have a lot of potential for abuse, and this is certainly one of them. There are many situations that are clearly deductible trips for landlords, but if you find yourself in a gray area, it's important to seek the advice of a qualified tax professional.
With that in mind, here's the official IRS guidance:
"You can deduct the ordinary and necessary expenses of traveling away from home if the primary purpose of the trip is to collect rental income or to manage, conserve, or maintain your rental property. You must properly allocate your expenses between rental and nonrental activities. You can't deduct the cost of traveling away from home if the primary purpose of the trip is to improve the property. The cost of improvements is recovered by taking depreciation."
Now, let's take a closer look at what this means to you.
Are your travel expenses deductible?
In order for your trip to be deductible, it must be primarily for business. You can certainly spend some time on leisure activities while you're there, but you can't deduct a five-day vacation just because you stopped at your rental properties and changed the light bulbs. The trip must have a clear purpose.
For example, if you need to oversee or perform maintenance to the property, that can be a good reason to take a trip, although it should be substantial enough to justify traveling. If you're going to spend two days painting and doing general repairs to your rental condo at the beach, that can be a valid purpose. If you're going to buy some new towels to leave for tenants, not so much.
On the other hand, notice how you can't deduct a trip where you made improvements to the property. While there is some gray area as to what counts as an improvement, for this purpose it refers to any rental property expenses that are added to your cost basis and depreciated over time. Adding a pool to a property, or renovating the kitchen are good examples, so if you take a trip to perform activities like these, you cannot deduct your travel expenses.
Showing your property to tenants could also be a good reason to travel, but it needs to be the primary purpose for your trip. So don't try to deduct a multiday trip if you spent half an hour showing the property to one prospective renter, but if you have multiple appointments or conduct a day-long open house, it could be a good reason to deduct the trip.
There are several other possible reasons that could make your trip primarily for business, and it's not possible to list them all here. The key is that you need to spend substantial time on activities that support your rental business, and you need to be able to document the business purpose of your trip if the IRS asks you to.
It's also worth mentioning that there are no set rules when it comes to how far your rental properties need to be from your primary home in order to deduct travel expenses, but use your best judgement. If you have to travel far enough outside your city that you need to stop to sleep, it could be a deductible trip. On the other hand, my rental properties are located about 30 miles from my home, so I couldn't simply get a motel room near the properties and call it a deductible trip.
The travel expenses must be "ordinary and necessary"
One big rule that needs to be followed is that the travel expenses you claim must be "ordinary and necessary."
Let's start with "ordinary." This essentially means that your expenses must be reasonable for what you're doing. For example, if you own a rental property located 1,000 miles away, buying an airplane ticket to fly there could certainly be considered a necessary expense. But if you buy a first-class ticket and arrange for a limousine to take you to the rental property when you arrive, it might be tough to justify that as an ordinary expense.
Then there's the question of whether your expenses were necessary. When it comes to the IRS, "necessary" doesn't always mean that you had to incur that expense. You could drive to a rental property located 1,000 miles away. You could select furnishings for your vacation rental property online and have your property manager set them up. But flying to such a property for the purpose of selecting and setting up furnishings could indeed qualify as an ordinary and necessary expense.
The key point here is that the travel expenses were incurred to help your rental activity and weren't elaborate or over the top.
What expenses might be deductible?
If your trip qualifies as primarily a business trip related to your rental properties, you may be able to deduct these expense types (not an exhaustive list):
- Transportation: Airfare to and from the location of the rental property can be deductible, as can other forms of transportation like trains. If you choose to drive, you can deduct your expenses either by using the standard IRS mileage rate or your actual expenses incurred. Some transportation expenses incurred while you're there (taxis, rental car, etc.) can also be deducted.
- Food and beverage: You can deduct half (50%) of the amount you spend on food and beverage while heading to and from your rental property's location (meals at the airport, for example), as well as on days when you're spending time on business activities. Gratuities you pay on this or any other deductible expense can be deducted as well.
- Lodging: You may be able to deduct hotels or other accommodations, both on the way to and from the destination as well as while you're staying near your rental properties.
There are other incidental costs you may be able to deduct as well, such as the cost of faxing documents while away from home or if you pay a fee to use a public Wi-Fi network.
It's also important to note that while you're certainly allowed to have leisure time on a trip that's primarily for your rental business, you can't deduct the expenses you incur on leisure days. For example, if you spend three days on rental activities and decide to stay an additional two days for fun, you can't deduct your meals, local transportation, or hotel expenses for those days.
What if the primary purpose of the trip was leisure?
If the primary reason you traveled was for leisure and you also did some work on your rental activities, do not attempt to deduct the entire cost of the trip. As I mentioned earlier, the IRS tends to take a close look at this deduction, and essentially trying to write off a vacation is a good way to raise red flags.
Having said that, you can still deduct any incidental expenses related to your investment properties. Did you pay to fax rental agreements to your property manager or spend money on supplies? Those things are deductible. But the travel costs themselves are an all-or-nothing deduction -- your trip was primarily for business purposes or it wasn't. And if it wasn't, you can't deduct any of your travel costs.