Travel and mileage make up a significant tax deduction for landlords. Keep detailed records using software like Landlord Studio.
Updated for 2023
Travel and mileage form a significant tax deduction for landlords. Unless you live next door to your property you are going to spend time and money traveling to and from, whether this is traveling to pick up supplies, managing viewings, or doing property inspections. Instead of paying for the associated costs out of pocket, these travel expenses can be deducted against taxable income at the end of the tax year.
This will allow you to reduce your taxable income and maximize profits. To ensure you remain tax compliant, you need to know what travel expenses are deductible and how to calculate your mileage tax deduction.
For landlords, mileage, as well as other car-related and travel expenses, are deductible in the year incurred.
This means that come tax season, you can claim your expenses for gas, car maintenance, and more against your taxes. The IRS has set guidelines as to what constitutes a deductible travel expense, and these should be followed to avoid being penalized.
However, it’s important to note that if you do intend to claim your mileage allowance you will need to keep a detailed and accurate mileage log. The easiest way to keep a mileage log for taxes is with specifically designed software. Thankfully, if you’re using Landlord Studio you can easily log the distance, purpose and details of all of your travel and easily run a mileage report at the end of the tax year.
In order for your travel expenses to be deemed legitimate, they need to be both ordinary and necessary. Meaning, they should be common and accepted within the business and also helpful and appropriate.
For landlords, this might look like traveling to one of your rental properties to perform a routine inspection (common) or traveling to meet accountants (helpful). It would not include, taking a longer route to work every day so you can drive past your rental properties or meeting another landlord friend for coffee.
Mileage expense examples that can be claimed for rental business purposes include:
Non-business related travel that cannot be claimed includes:
Although what constitutes a travel expense can sometimes be ambiguous, it’s best to abide by the guidelines to avoid being penalized by the IRS. If you’re audited by the IRS and they determine that you have claimed unnecessary expenses (extra miles, for example), you could face penalties for overstating deductions, such as fines or even federal prison time. Negligence and not keeping relevant records can also lead to penalties.
The easiest way to calculate mileage tax deductions is by using the standard mileage rate set by the IRS. For the 2021 tax year, the rate is 56 cents per mile and for the first 6 months of the 2022 tax year, it’s 58.5 cents per mile. In recognition of significant gasoline price increases during 2022, the IRD has adjusted the rate for the last 6 months of the 2022 tax year to 62.5 cents per mile. When calculating your mileage for the 2022 tax year, ensure that you use the correct rate for each month.
The IRS increased the standard mileage rate for tax purposes by 3c per mile for 2023. For the 2023 tax year, the standard mileage rate is 65.5 cents per mile.
These rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.
To calculate your deduction, simply multiply your business miles by the standard mileage rate. For example, if you drove 10,000 business miles in 2021, you would multiply this by 0.56 to give you a mileage tax deduction of $5,600.
In order to claim this deduction, you need to keep an exact record of the miles traveled, the dates and time of the travel, and the purpose of the travel. The easiest way to do this is to use a mileage tracker like the one built into the Landlord Studio app.
Other vehicle expenses you can claim in addition to mileage include business-related parking fees and tolls, interest on a car loan, and registration or license fees. You must use the standard mileage rate in the first year you use a car for your rental activity to be qualified to use this rate going forward. The bottom line is that unless your vehicle has high operating costs, the standard mileage rate should give you a significant deduction.
Another way to claim a mileage tax deduction is to deduct your actual expenses. This is a little more complex than using the standard mileage rate as you also have to track how much you spend on gas, oil, repairs, tires, insurance, and other car operating costs. Vehicle depreciation is also included here.
The downside of using this method to claim expenses is that it requires more record-keeping, so may not be worth it if you don’t drive much for work purposes. If done properly and/or your car has higher than normal operating costs, it can lead to healthy tax savings.
An easy way to help you track actual expenses is to use an income and expense tracking software (like Landlord Studio) which will allow you to record and categorize your travel expenses as they happen so you don’t miss any, and easily digitize receipts and recording the purpose of the travel in the notes section.
Whether you claim actual expenses or the standard mileage rate, the IRS stipulates that you must complete part V of Form 4562 and attach it to your tax return.
Depending on how geographically widespread your rental property portfolio is, or if you’ve invested in out-of-state property, you may not always be able to travel for work by car. If this is the case, and you have to leave your city or state in which your business or work is located in order to manage your rental properties, you can deduct other expenses such as:
For an overnight trip to be deducted, the primary purpose of the trip must be work. Although this sounds obvious, the IRS pays close attention to overnight business trips, so operating within the guidelines is a must.
Travel within the United States is subject to a hard-line rule whereby you can deduct 100% of your expenses for a business trip, but only if you spend more than half of your time on rental activities.
For example, if you go away for 6 days and work for 4 of those days and relax for 2 days, that can be expensed as a business trip. If, however, you’re only planning to work for 1 day but decided to extend the trip by 5 days to have a personal vacation while you’re already away, this cannot be counted as a work-related trip.
You must keep a log of the total miles driven if you choose to take the standard mileage deduction. The IRS specifically requires that you record the following:
The IRS does not care for ballpark figures, which means your mileage log must be maintained on a regular and consistent basis.
Tip: You can use the Landlord Studio's in-built GPS mileage tracker to easily keep an accurate and up to date mileage log.
If you choose the actual expense deduction, you don’t need to maintain or record your mileage. Instead, keep copies of relevant receipts and documentation.
Each document must include:
The travel expense must be incurred within the tax year for which you’re making the claim.
Your accounting software should have a built-in mileage tracking tool. Landlord Studio for exmple, has an automatic GPS mileage tracker that will save you time and simplify the process of tracking your travel and mileage expenses. Claim the maximum allowable deduction at tax time.
What’s more is that at the end of the tax year, you can instantly generate a mileage report to calculate your overall deduction for the year. This report can be generated on any device whenever you need it and all data is securely stored in the cloud for posterity.
If you choose to track your actual expenses or have other travel expenses such as airfares Landlord Studio can be used to easily record and categorize these and reports run at the end of the year.
All reports can be downloaded or shared directly from the software with your accountant or business partners.
Tracking your mileage tax deduction for rental property accurately is key to maximizing your tax deductions and avoiding being penalized by the IRS.
Landlord Studio has an in built GPS mileage tracker that makes it easier to stay compliant by allowing you to track your travel expenses and then create relevant reports at the tap of a button.