Travel Time Increases Odds of Deducting Rental Property Losses

If you own rental properties, you understand the frustration: your losses do not help unless you qualify as a real estate professional under tax law and materially participate in the properties. Both requirements depend on hours. The real estate professional test alone requires at least 750 hours a year, and no other work activity can take more of your time.

Here is a source of hours that many owners overlook: your travel time to and from the rentals.

In a recent tax court case, the Leyh case allowed the owner’s drive time to her rentals and let the couple deduct a $69,531 loss. In another matter related to this tax case, the IRS relented and allowed the drive time once the taxpayer surfaced her home office.

Other travel time spent and the associated costs—such as airfare, lodging, and related expenses—can also count toward the 750-hour annual requirement and create additional deductions.

Your home office can make a meaningful difference. When it qualifies as one of your principal places of business for your rental activity or another business, trips from home to your properties may qualify as business travel. That can give you three valuable benefits: a home-office deduction, vehicle deductions for mileage that would otherwise be nondeductible commuting, and additional hours toward this participation requirement.

One warning:

Travel and driving time help only if you can prove them. Log each trip as it happens, including the date, destination, miles, time, purpose, and any other relevant details. Reconstructed logs can create problems.