There are a lot of numbers to keep track of in the rental industry. From vacancy rates to rent averages, numbers are a constant source of information and wealth generation. But there’s one number that some landlords forget to keep their eyes on: mileage for rental property management.
Tracking travel expenses for rental property management, such as mileage, is key in ensuring the best profit margin each year. Landlords with a strong handle on tax deductions and how to properly apply them to their business documentation each year utilize mileage in those calculations.
Do you know how to calculate travel expenses for rental property, or are you missing out on this key deduction? Maximizing profits is possible by reducing taxable income with deductions.
Today, learn how to track travel expenses, including mileage, to ensure you remain tax compliant while maximizing your profits.
A Table Of Contents On Mileage For Rental Property
Deducting mileage for rental property management isn’t always a straightforward process. Everything from inspections to property viewings may be included, and there are multiple ways to include mileage in your deduction calculations. Get started with this guide:
- All About Mileage For Rental Property Management
- How To Calculate Travel Expenses For Rental Property
- Travel Expenses Rental Property FAQs
- Don’t Forget About Deducting Mileage For Rental Property
All About Mileage For Rental Property Management
Mileage is a deductible expense for landlords. The cost of gas and the wear-and-tear on your vehicle while traveling to and from rentals for work is a true expense for your business, so it’s essential to know how to include this expense in your annual tax return.
To claim mileage as part of your standard deduction, you must keep a detailed mileage log. This document should track your travel to and from business activities and can be used to verify your tax return.
Travel-related deductions landlords can use extend beyond just mileage. Toll road, parking, and license fees may all be deductible depending on your situation.
IRS Guidelines On Landlord Mileage
The IRS requires that all deducted travel and transportation expenses related to rental property must be ordinary and necessary costs for your business to operate. Otherwise, they are not legitimate. For example, meeting a local contractor about a rental repair is deductible; meeting a friend, who happens to be a landlord, for dinner is not.
More examples of valid expenses that may apply to your rental business include the following:
- Traveling for property showings
- Traveling to complete maintenance or repairs
- Traveling to meet with contractors, real estate agents, etc.
- Traveling to business-related classes
Conversely, any travel tied to your daily life or commute is not a deductible expense. These fall outside the “necessary and ordinary” expense rule the IRS follows.
For example, a detour on your way home from a rental to pick up dinner and groceries would not be a deductible travel expense. The purpose of that leg of the trip is not business related. While you could still deduct your travel to the rental property, the journey home should be excluded from your calculations.
It’s imperative to be careful about what you include in your expenses. The IRS implements hefty fines on your tax return if you are found to be deducting illegitimate business expenses.
Mileage For Rental Property vs. Actual Expenses
Most landlords utilize the standard deduction on their business expenses. This means you will use the standard mileage rate for expenses when entering your mileage. Many find this method to be the most straightforward and effective.
It’s also possible to deduct your actual expenses rather than the standard deductible when filing your taxes. This is more complex as you will need to track more details, including:
- Car-operating costs
- Vehicle depreciation
For some, this method enables larger savings. This is typically the case when your business vehicle has very high operating costs.
Sticking to the standard deduction is usually the way to go for most landlords, especially those working in their home markets. Most accountants and tax software solutions will compare which filing method makes the most sense for your situation, so don’t get too stressed about this. The key is understanding that you have options.
How To Calculate Travel Expenses For Rental Property
Understanding why travel expenses are important for tax filing purposes isn’t enough. It’s time to learn how to calculate travel expenses for rental property. Put tracking into action to ensure your mileage for rental property management isn’t missed in your deductions.
#1: Create A Log To Track Mileage And Expenses
The first thing you need to do is ensure that you have a clear tracking system for both mileage and expenses.
You’ll need to keep a mileage log if you plan to claim mileage based on a standard deduction. The IRS specifically requires the following information to be recorded in your driving log:
- Odometer at the beginning and end of every trip
- Purpose of travel
- Where the trip starts and ends
- Date of the trip
Your mileage records need to be precise. Guesswork shouldn’t be included. If you aren’t sure, check the details or leave it out. Otherwise, you could deal with a sticky review by the IRS.
Some people prefer to use a mileage-tracking app rather than creating a physical log. Either method can work. Try out a mileage app if you enjoy tracking your calendar and other essentials on your phone. Otherwise, keeping a notebook in your vehicle makes recordkeeping simple.
You’ll also want to track all expenses. Create a record of receipts to do so. This is especially important if you claim actual expenses rather than the standard deduction. If so, keep records of receipts and documents for all travel, travel-related services, and fees. Be sure to have the cost and description of the service on record along with the date.
#2: Make Sure You Don’t Miss Any Common Expenses
The most common expenses claimed by landlords and real estate investors include the following:
- Travel to and from the airport
- Transportation fare (airfare, bus fare, train ticket)
- Travel to and from hardware or supply shop for business-related supplies
- Travel to and from meetings with team members
- Travel to and from knowledge seminars and continued learning sessions
- Shipping cost for luggage
- Lodging when traveling for work
- 50% of meal expenses while outside of your area for work
- Other miscellaneous fees incurred due to work (computer rental fees, internet fees, etc.)
As you work through your expenses and deductions, be sure that any relevant items from this list are included in your logs and documentation.
#3: Review Updated IRS Guidelines Each Year
Even if you’ve been filing your taxes as a landlord for years, there is always a chance that some provisions will change. Working with a qualified accountant can help ensure you don’t misunderstand any of these changes, but you should also research to have an excellent foundation to work with.
Landlord tax deductions can be reviewed online. You can also see yearly updated mileage rates, as these change regularly to reflect the current economy. Keep up to date with the guidelines to ensure there aren’t any unexpected costs or changes.
#4: File Taxes Carefully
Finally, make sure you take your time calculating deductions and expenses, and working through your overall tax return. There is a lot of information that you’re dealing with and it can get confusing. Break down the overall return into relevant sections and work on them one at a time. This will keep you on track and make sure everything is clear.
It’s always recommended that you work with a qualified professional to file or review your tax return before it’s submitted to the IRS.
Taking Care Of Your Business
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At RentPrep, we prioritize creating tools to help landlords like you succeed. In addition to our tenant screening services, we also put energy into developing our newsletters and blog posts as valuable resources. Sign up for our latest updates today, and stay in the loop with the latest and greatest in the rental market.
Travel Expenses For Rental Property FAQs
Understanding what does and does not qualify as an expense is just one of the obstacles landlords face as they work through tax deductions. Here are the answers to the most commonly asked questions as landlords handle mileage, expenses, and taxes:
Can landlords deduct travel expenses?
Landlords can deduct travel expenses if the travel is explicitly done to visit a rental property and is necessary for business. Travel expenses often include gas, lodging, and meals. It’s vital that you do not overuse these expenses or try to push the boundary of what’s actually necessary for business.
Travel expenses are an overused expense category of the IRS, so this section may be scrutinized if your return is under review. As such, ensure that your travel expenses are thoroughly documented so you can show your case if necessary.
What are the main things to remember about deducting travel expenses?
Consulting a qualified CPA whenever you have questions about travel expense deductions is always the best move. However, there may be times when you’re trying to determine if something will or will not be a travel expense when you cannot consult an accountant.
In these times, consider the following:
- The trip must have a clear business purpose
- Most of the time on your trip must be spent on business, not leisure
- Accommodations, meals, and other expenses must be “ordinary” for your business rather than splurges on unnecessary and extravagant expenses
- Traveling for standard maintenance and repairs to a rental property is tax deductible; traveling for capital improvements is not
- Showing or inspecting a rental property is a valid reason to travel for business
These are just some of the most common areas that confuse landlords as they work on travel expense deductions. If you’re still trying to decide about a particular trip or expense, research the issue on the IRS page devoted to this topic or contact a qualified professional for assistance.
What should be included in travel expenses for landlords?
When it comes to tax deductions, you want to ensure you aren’t missing anything. Travel expenses represent unfamiliar territory for many landlords. Before you file your taxes, review this list of the most common travel expenses for landlords for any missed items:
- Mileage, including gas and vehicle wear-and-tear
- Meals and food-related expenses
- Toll cost
- Cost of transportation, i.e., bus ticket
- Baggage fees on flights
Not all of these deductions will apply to how you work. Most landlords do not travel via airplane for rental property business, but some with an eye for long-term investments in other cities may need to include this expense. Consider your situation and how travel plays into your business. From there, list what costs should be included in your tax documents.
Can I deduct mileage traveling to and from my rental properties?
Yes. Mileage for traveling to and from your rental properties should be deducted from your taxes as long as the reason for the trip is business. This means you can include expenses incurred for trips related to property inspections, essential repairs, maintenance, lease signing appointments, property showings, and other necessary business activities.
Mileage accrued for capital improvements, such as replacing the roof on the house, should be excluded. These expenses are not ordinary and necessary to business, and as such, fall outside of the scope of deductible travel expenses.
Can I deduct travel while investigating a new rental market?
This question gets a bit deeper into the complications of deducting travel expenses. Some landlords travel to multiple cities to determine where their next investment hub should be. This can incur large travel costs, which seem like they would be deductible.
However, there’s more to it.
Once you acquire your first property in the target market, you would need to depreciate the travel cost over a standard deduction period of 27.5 years. This is due to capitalization rules and the expansion of your business. The expenses are considered business startup expenses and are only deductible through depreciation.
Don’t Forget About Deducting Mileage For Rental Property
Now you know how important it is for landlords to have a detailed record of their mileage and how it relates to their business. Though it can seem complicated to start tracking this information, it’s much easier once you set up a system.
Ensure you are doing the following for the most straightforward route to maximize profits:
- Keep a detailed record of your mileage, cost of gas, and other details. The more information, the better so you have options when determining tax calculation methods.
- Remember to include all eligible travel expenses, including applicable deprecation on any vehicles.
- Determine which type of tax deduction for mileage makes sense for your taxes and business expenses.
Mileage tracking doesn’t have to be complicated. Set up a system that works for you and adjust it over time if necessary. It doesn’t have to be perfect, but it does need to track essential info. You’re good to go if you have that ready for tax prep.