If you travel overnight for your rental activity, you can deduct your airfare, hotel bills, meals, and other expenses. If you plan your trip carefully, you can even mix landlord business with pleasure and still take a deduction. However, IRS auditors closely scrutinize deductions for overnight travel and many taxpayers get caught claiming these deductions without proper records to back them up. To stay within the law (and avoid unwanted attention from the IRS), you need to know how this deduction works and how to properly document your travel expenses.
For tax purposes, travel expenses are the amounts you spend when you travel away from your tax home overnight for your business (rental) activity. You don’t have to travel any set distance to take a travel expense deduction. However, you can’t take this deduction if you just spend the night in a motel across town. You must travel outside your city limits. If you don’t live in a city, you must go outside the general area where your tax home is located.
You must stay away overnight or at least long enough to require a stop for sleep or rest. You cannot satisfy the rest requirement by merely napping in your car. (Learn more about the top tax deductions for landlords.)
In order to deduct the cost of your trip, it must be primarily for your rental activity. This means that you must have a rental purpose in mind before starting out, and you must actually do something for your rental activity while you’re away. Examples of rental business purposes include:
On the other hand, rental-related activities do not include:
Use common sense when deciding whether to claim that a trip is for your rental activity. If you’re audited, the IRS is likely to question any trip that doesn’t have some logical connection to your rental activity.
To be deductible, your travel expenses must be ordinary and necessary. This means that the trip and the expenses you incur must be helpful and appropriate for your rental activity, not necessarily indispensable. Traveling to a rental property is not always ordinary and necessary.
Virtually all of your travel expenses are deductible. These costs fall into two broad categories: your transportation expenses and the expenses you incur at your destination.
Transportation expenses are the costs of getting to and from your destination—for example:
If you drive your own car to your destination, you may deduct your costs using the standard mileage rate, or you can deduct your actual expenses. You may also deduct your mileage while at your destination.
You may also deduct your food and lodging expenses while at your destination. Destination expenses include:
Different rules apply to your transportation expenses and the expenses you incur while at your destination (destination expenses).
Travel within the United States is subject to an all or nothing rule: You may deduct 100% of your transportation expenses only if you spend more than half of your time on rental activities while at your destination. In other words, your rental activity days must outnumber your personal days. If you spend more time on personal activities than on rental activities, you get no transportation deduction.
You may also deduct the destination expenses you incur on days when you do rental-related tasks. Expenses incurred on personal days at your destination are nondeductible personal expenses. (The rules used to determine what constitutes a rental activity day are discussed below.)
If your trip is primarily a vacation—that is, you spend more than half of your time on personal activities—the entire cost of the trip is a nondeductible personal expense. However, you may deduct destination expenses that are directly related to your rental activity. This includes things like phone calls or faxes. It doesn’t include transportation, lodging, or food.
As long as your trip is primarily for your rental activity, you can add a vacation to the end of the trip, make a side trip purely for fun, or enjoy evenings at the theater or ballet, and still deduct your entire airfare. What you spend while having fun is not deductible, but you can deduct all of your rental activity and transportation expenses.
For more on travel-related tax deductions for landlords, including special rules that apply to travel outside the U.S., see Every Landlord's Tax Deduction Guide, by Stephen Fishman (Nolo).