Another Travel Write-Off Question (Hopefully my last one)

[Lucas Hammer]

Hey everyone, I've searched high and low for the answer to this, but I can't seem to find it. I have a couple of different scenarios and I just want to make sure that I understand how taxes work on both of these. I do already have an investment property in Chicago, so I'm "in business" currently.

1. I believe that New York is ahead of Chicago on housing trends and I'd like to visit and actually tour similar properties in NYC to get ideas for how to market my property (small square footage, making the most of the space, creative ideas for maximizing usability, etc.). As long as the majority of my time is spent on real estate researching, such as investor's meetings and visiting properties, I can write off the trip even though I don't own a property in NYC, correct? (I'm aware, I couldn't write off any personal things done while there, but food, hotel, airfare, etc.)

2. I'm considering buying a property in Tulsa (my hometown) due to low cost of living, having family/friends that I could have check on the property regularly, etc. If I go tour properties there, but decide not to buy yet, do those costs get added to the basis of a Tulsa property if/when I buy one there, or since I'm already in business as an investor with an active property, can I write off those costs? As a follow-up question, would the answer be different if I owned an LLC vs sole proprietor? Also, what happens if I deciding that Tulsa isn't the market for me and don't buy one at all? Am I simply out of that money for the research done since I don't have a second property?

Thanks!

[Brandon Hall]

@Ray Johnson this is not correct. 

@Lucas Hammer this subject is a very technical area of tax law. Very few people (even CPAs) fully understand the inner-workings of the code. So be very careful trusting anyone's advice.

What you are asking about is in regards to expansion costs. In regards to real estate rentals, you cannot deduct expansion costs until you are in business (i.e. own a rental) in the area in which you are expanding to.

In order to deduct your NYC trip, you would need to purchase a property in NYC. if you do not purchase a property in NYC, your trip is not deductible. The costs of your exploratory trip will, however, be deductible (or added to the basis of the property) once you actually purchase a property in NYC.

Why in the world is this the case? This is illogical and makes no sense, right?

Think about it like this: if I own a property in NC but like to vacation in Hawaii, without this expansion rule limiting my travel expenses, I could theoretically always deduct my travel to Hawaii and never actually purchase a property out there. That would be more illogical.

So the expansion rule was implemented. You cannot deduct travel costs unless you are in business in that specific area. Note that this relates primarily to real estate related businesses.