Mileage Expense Claims For Rental Property Owners

As a rental property owner, you can deduct travel expenses from your taxable income, which can save you a lot of money on your taxes. This includes mileage, meals, lodging, and other related expenses. The Internal Revenue Service (IRS) allows you to claim travel expenses for business tasks that are ordinary and necessary, meaning legitimate and common tasks that help your business. This includes collecting rent and maintaining your rentals. However, the IRS does not allow you to deduct your commute to your rentals, unless you use your home as your principal place of business.

Local transportation expenses

• Getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home.
• Visiting clients or customers.
• Going to a business meeting away from your regular workplace.
• Getting from your home to a temporary workplace when you have one or more regular places of work. These temporary workplaces can be either within the area of your tax home or outside that area. Transportation expenses don't include expenses you have while traveling away from home overnight.

If you use the standard mileage rate, you can deduct 0.655 per mile for business use of your car in 2023. If you use actual car expenses to figure your deduction, you can claim a depreciation deduction. You can generally use one of the two following methods to figure your deductible expenses:

• Standard mileage rate.
• Actual car expenses.

Standard mileage rate

The standard mileage rate is the simplest way to calculate and deduct local travel expenses as it requires the least amount of tracking. The standard mileage rate is provided by the Internal Revenue Service (IRS) and is subject to change. For instance, the standard mileage rate for 2021 was 56 cents per mile, for the first half of 2022 it was 58.5 cents per mile, and for the latter half of 2022, it was adjusted to 62.5 cents per mile in recognition of significant gasoline price increases. The standard mileage rate for 2023 is 65.5 cents per mile.

To calculate the standard mileage deduction, simply multiply the number of deductible miles driven by the standard mileage rate. For example, if you drove 500 miles in a month for rental property-related purposes, the standard mileage deduction would be $280 (500 miles x 56 cents). It is important to note that additional expenses, such as tolls, parking, prorated property tax, and loan interest, can also be deducted when using the standard mileage rate.

When using the standard mileage rate, it is crucial to maintain accurate records of your mileage. The IRS requires more detailed information than just the total number of miles driven. Specifically, they request the odometer reading at the beginning and end of the period (usually a month or a year), as well as per-trip records that include the date, the number of miles driven, the vehicle used, the purpose of the trip, and the locations visited. Utilizing accounting software or a smartphone app designed for mileage tracking, such as MileIQ, SherpaShare, or TripLog, can assist in keeping accurate records.

It is worth mentioning that the standard mileage rate is not the only method for calculating mileage deductions. The other option is the actual expense method, which involves tracking all vehicle-related expenses, such as gas, insurance, repairs, and maintenance, and then calculating the proportion used for business purposes. While the actual expense method may yield a larger tax deduction in certain cases, it requires more meticulous record-keeping and may not be worth the time and effort for most investors.

Actual expenses method

The actual expense method is one of two methods the IRS allows for determining your driving expenses. This method requires you to keep track of all auto expenses and business-related miles, then claim a proportional share of the expenses as a deduction.

Here's how it works:

Calculating the Actual Expense Deduction

Let's say your auto expenses for a given month include items such as car payments, gas, oil changes, insurance, repairs, maintenance, car washes, registration and license fees, tolls, and parking costs, which totalled $975. If 500 out of the 2,100 miles you drove that month were for your rental property business, you can calculate your actual auto expense deduction as follows:

• $975 (total auto expenses) / 2,100 (total miles driven) = $0.464 per mile
• $0.464 (cost per mile) x 500 miles (business-related miles) = $232 (actual auto expense deduction)

Record-Keeping Requirements for the Actual Expense Method

The actual expense method requires meticulous record-keeping. In addition to tracking your mileage, you need to keep receipts and records for every single expense associated with operating and maintaining your vehicle. This includes lease payments if you lease your vehicle, or depreciation if you own it.

The IRS requires you to record your miles driven in a specific way. You need to record the odometer reading at the beginning and end of the period (usually a month or a year). For each business trip, you should also record the date, the number of miles driven, the vehicle used, and the purpose and/or destination of the trip.

When to Use the Actual Expense Method

The actual expense method may be more suitable for those who are diligent in keeping organised records and who take infrequent personal trips in their vehicle. It may yield a larger tax deduction than the standard mileage rate method, but it requires more time and effort to track all the expenses. If you are unsure, it is generally recommended to use the standard mileage rate method.

Travel expenses for new markets

Once you purchase a rental property in a new geographic area, additional travel to the same area to evaluate other potential acquisitions becomes tax-deductible as a business expense. However, if you travel to a different city to research potential rental properties but decide not to invest, these travel costs are considered business start-up expenses and can only be deducted after you buy your first rental property in that market.

Therefore, it is important to understand the rules for deducting travel expenses for new markets. Here are some key points to consider:

• Ordinary and Necessary: Travel expenses must be considered "ordinary and necessary" to be tax-deductible. This means they should be common, legitimate, and helpful for your business.
• Primary Purpose: The primary purpose of your trip must be business-related. The majority of your travel time must be spent on rental business rather than leisure.
• Transportation Expenses: Transportation costs such as airfare, train or bus fares, car rentals, and shipping costs for luggage are deductible.
• Lodging and Meal Expenses: Lodging expenses (e.g. hotel, motel) for days you work at your rental property are deductible. Additionally, 50% of meal and beverage expenses incurred while travelling are also deductible.
• Record-Keeping: Keep detailed records of your travel expenses, including mileage logs, receipts, and documentation. This will help you properly claim deductions and avoid penalties for overstating deductions.
• Mixing Business and Pleasure: If you mix business and personal travel, expenses such as airfare may still be deductible if the trip was primarily for business purposes. However, lodging, meals, and other expenses incurred during non-business days are not deductible.

Other travel expense deductions

When it comes to rental properties, there are several other travel expense deductions that real estate investors can claim to reduce their taxable net income. These deductions are allowed by the IRS and can result in significant savings. Here is a detailed breakdown:

Transportation Expenses

Transportation expenses incurred while travelling to and from a rental property are deductible. This includes costs such as airfare, train or bus fares, car rentals, and associated costs like parking fees or tolls. If you use your personal vehicle, you can deduct the mileage or the actual expenses, including gas, insurance, repairs, and maintenance. It is important to keep accurate records of your mileage and expenses, as the IRS requires specific information for claiming these deductions.

Lodging and Meals

When travelling away from home for rental property-related business, lodging expenses and meals are deductible. You can claim lodging costs, such as hotel or motel fees, and 50% of your meal and beverage expenses. However, it is important to note that these deductions are only applicable if the primary purpose of your trip is for rental property management or maintenance.

Miscellaneous Expenses

There are several other miscellaneous travel expenses that can be deducted. These include tips, baggage fees, transportation costs, laundry and dry cleaning, groceries, computer rental fees, internet charges, and telephone expenses. These deductions can add up to significant savings, especially for investors with multiple rental properties.

Travel Expense Rules

While the IRS allows for these deductions, it is important to follow certain rules. The travel expenses must be "ordinary and necessary" for your rental property business. The purpose of the trip should be primarily for business, and the majority of the travel time must be spent on rental property-related activities. Additionally, expenses for capital improvements, such as replacing the HVAC or installing a new roof, are not deductible.

Tracking and Claiming Deductions

To claim these deductions, it is crucial to maintain accurate records of all expenses, including receipts, invoices, and mileage logs. There are various methods to track these expenses, such as spreadsheets, specialised software, or mobile apps. When filing your taxes, you can use Schedule E, Form 1040, to report rental property travel expenses, income, and operating expenses.

Frequently asked questions