Commuting Deductions for Rental Properties

This past week I was thinking about how to appropriately write-off mileage/vehicle use for rentals. My colleague Matt Metras pointed me to Trzeciak v Comm, T.C. Memo. 2012-83 which is a case involving the deductibility of commuting expenses involved in running operations on rental properties as well as whether those hours traveling to properties counted as Real Estate Professional hours. So literally a case examining the exact question I was pondering.

One of the main points that taxpayers made was that “commuting” is not an applicable term for real estate activities, and these expenses should be considered “travel expenses” and be allowable and considered a deduction as soon as the taxpayer leaves their home.

I won’t lie, this was a thrilling read. I thought the taxpayer’s rep made a very strong case for their position, but whenever the IRS would respond, they kept knocking it down. What were they going to rule?!

One of the responses by the IRS as the case escalated was that even though the taxpayers were arguing their home was their “principal place of business” (meaning any travel from there to properties would be deductible), they didn’t formally establish it with a home office in their original tax return filings. The taxpayers argued although they didn’t file one, they did have one that met the home-office rules (it was their primary place of business and its as exclusively used for the business).

The result? A win for the taxpayer! Once they were able to prove that they did have a home-office under Section 280A rules, they were able to deduct all travel-related expenses to the property as well as count those travel hours as part of Real Estate Professional work hours.

So the takeaway? Make sure you establish a home-office if you do rental real estate to both unlock travel deductions as well as get hours to count toward your Real Estate Professional status.

Source: Mad Woman Media