A Tax Deduction Extravaganza for Jet-Setting Investors!

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Real estate investors often find themselves traveling to and from rental properties, banks, hardware stores, and meetings with various professionals. If you've set up a home office, your business-related travels are tax-deductible within your "tax home," which is the geographic location where your rental business is established.

Tracking Your Business Miles

To make the most of these deductions, you can choose between two methods: the actual expense method or the standard mileage deduction. Regardless of your choice, maintaining an IRS-compliant mileage log is crucial. The log should include:

• Odometer at the beginning and end of the year
• Date, purpose, and locations of each trip
• Number of miles for each trip

Using an automatic mileage tracking app like MileIQ, combined with Stessa's mileage expense feature, can simplify this process. In Stessa, go to your Transactions page, click "+ Add," choose the "Mileage" tab, input the details, and save.

Standard Mileage Rate

The standard mileage rate is a straightforward way to deduct local travel expenses, requiring minimal tracking. Multiply your business miles by the standard rate (e.g., 58 cents per mile for 2019) to calculate your deduction.

Example: If you drove 6,700 business miles out of a total of 10,000 in 2018, your deduction would be $3,651.50.

Actual Expense Method

Under this method, you deduct a portion of actual vehicle expenses. This includes lease payments, gas, insurance, maintenance, and more. Keep records (e.g., receipts) and use Stessa's mobile app to streamline expense tracking.

Example: With a business percentage of 67% (6,700/10,000) and total vehicle expenses of $8,000, your deduction would be $5,360.

Travel to New Markets

When exploring new markets outside your tax home, travel expenses are treated differently. Research and evaluation expenses for a property eventually purchased are added to the property basis. Once you own a property, subsequent travel for acquisitions becomes tax-deductible.

Deductible Travel Expenses

Transportation

• Airfare, train, bus, and car expenses
• Travel to and from the airport and lodging to business locations

Lodging

• Overnight stays required for sleep or rest

Other Expenses

• 50% tax deduction for meals outside your tax home
• Dry cleaning, phone, tips, and other necessary business travel expenses

Note

• Entertainment is no longer tax-deductible under The Tax Cuts and Jobs Act.

Mixing Personal and Business Travel

When combining personal and business travel, some expenses may still be deductible if the trip is primarily for business. Business days are those where you spend four or more hours on business activities.

Example: If a seven-day trip includes five business days and two personal days, expenses for the five business days are tax-deductible.

Understanding these local travel deductions and navigating the nuances of business and personal travel will help you leverage tax incentives as a real estate investor. Stay informed to run your business effectively and maximize your income.