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May 23, 2024 | read

151. How to Deduct Your Vacations as Business Travel Expenses

Thomas Castelli

In this episode, Thomas Castelli explains how you can deduct your vacations as business travel expenses!

This episode is sponsored by our free Tax Smart Investors Facebook Group.

Full Transcript:
This podcast has been transcribed using AI, please excuse spelling, grammatical, and other errors.

Brandon Hall 0:00
You’re listening to the real estate CPA podcast, your source for all things real estate, accounting and tax. Here we reveal our secrets that can save you 1000s in taxes, streamline your accounting process and help grow your business. Stay tuned to hear insightful interviews with industry experts, successful real estate investors and current clients on what strategies they use to grow their business, and how they steer clear of Uncle Sam.

Thomas Castelli 0:30
Hi everyone, and thanks for tuning in Thomas Castelli here and in today’s episode, we’ll discuss how to write off real estate related domestic travel expenses, including visiting ad estate properties, conferences, and how you can even squeeze a little bit of personal time in between your trips. The next handful of episodes here on the real estate CPA podcast are actually requests from members of the tax smart real estate investor community on Facebook. If you haven’t already joined the Facebook community. You could join today by searching tax warn investors on Facebook or visiting facebook.com/groups/tax Warn investors and who knows your request might turn into a future episode. Also, we recently relaunched tech smart investors subscription service on tax smart investors.com, where we will post exclusive deep dive articles into lucrative real estate tax deductions and strategies that could save you 1000s in taxes and if your CPA isn’t providing you a quality tax advice that’s helping you reduce your taxes, pro subscribers can get access to our team of experienced real estate CPAs via email, phone and video calls at a fraction of the cost of one on one tax planning. And for a limited time between now and the end of August 2021. We’re going to give a 30 day free trial for the Plus plan and 50% off the Pro Plan for your first month. Just visit tax smart investors calm and use promo code plus or Pro to subscribe today. We’ll see you there. But for now let’s jump right into today’s episode. Alright, so the first item we’re going to discuss today is how to duck travel to new markets. So first, let’s just define what a new market is for our purposes. So a new market is going to be a market that’s at least 40 miles outside of your tax home. And your tax home is generally where your primary residence is located. And it’s a market where you’ve yet to buy any investment properties. So for example, if you live in New York, and you travel to Florida, where you don’t have any existing properties, New York would be your tax home and Florida is going to be the new market. And as an investor you may be traveling to new markets outside of your tax home to determine whether or not a certain market is suitable for investment and or to eventually acquire your first rental property within that market. And unfortunately, travel to these new markets generally isn’t going to be tax deductible until you actually acquire a property in that market. And once you acquire a property within that market, you’re going to be able to go ahead and add the your travel expenses to the basis of your property. And it’s going to be deducted over a period of time typically over the course of a life of the property that you own. And the reason for this and I know it might seem a little unfair is because technically you really haven’t established that business in that market until you acquired your first rental property. If you think about it, this makes sense the IRS put these rules into place so that there’s not widespread abuse of people going and traveling to Hawaii or some exotic location claiming to look at properties and just deducting the expenses. Meanwhile, they never actually acquired a property. So that kind of makes sense. But the good news is once you acquire a property within that market, future travel expenses generally become tax deductible in the year that you incur those expenses because you now have a business in that market. Now let’s discuss what expenses are actually tax deductible when traveling outside of your tax home. So expenses to get to and from your destination are tax deductible and this includes but is not limited to airfare train tickets, bus tickets mileage if you’re traveling by your car. In addition, expenses to travel to and from the airport, such as a taxi or bus are also tax deductible. In addition, travel to and from the lodging area. For example, the hotel Airbnb or business location like a potential rental property, a conference center, etc. Those are gonna be tax deductible rental cars that are used for business purposes while you’re on your trip will also generally be tax deductible. If you’re required to stay overnight while you’re traveling expenses for a hotel or an Airbnb will generally also be tax deductible. Now there’s going to be some other expenses that you may incur while traveling outside of your tax home, including dry cleaning, the use of your cell phone tips and other ordinary and necessary business expenses as you’re traveling along. Oh yeah. And meals to meals outside your tax home are also generally tax deductible. Now one of the questions we often get from clients as well as listeners alike is whether or not you can deduct expenses to travel to conferences, networking events. and other real estate related events as you operate your business? And the answer to that question is these expenses will typically be tax deductible. If you already have a rental business, that means you have at least one rental property and these events that you’re traveling to are in relation to that business. Now, if you don’t have a rental business yet, you’ll typically not be able to deduct those expenses because you technically don’t have a business. Now we’re going to get into the sexy part of this entire conversation and what everybody always wants to know about how can I write off my vacations? How can I get personal time into my trip? Well, there are some guidelines and some rules that you can follow that are going to allow you to squeeze in some personal or vacation time into your business trips. So the first item here is making sure that the travel expenses to and from your destination such as airfare is tax deductible, and it’s going to be tax deductible if the trip is primarily for business purposes, which generally means you’re spending less than 25% of your trip on personal activities. To ensure your trip is primarily for business purposes, we must determine whether each day you’re traveling is a business day or a personal day. business days include days when you work more than four hours are traveling to your destination. So in other words, a travel day, or your presence is required at the location. For example, you might be required to appear in court to evict a tenant. Also, there’s something called the sandwich rule, which makes weekends business days if it’s impractical, either due to Time or Expense, to travel back and forth to your home and the business destination between Monday and Friday. For example, let’s say you go on a seven day business trip to visit your out of state rental portfolio, but only spend five days on business and the other two at the beach. Because this trip was primarily for business purposes.

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That round trip airfare to lodging meals and related expenses on the five business days are tax deductible. However, the lodging meals and other expenses from the two personal days are generally not going to be tax deductible. So by ensuring that your trip is primarily for business purposes, and between the fact that a business days, only four hours, and there are 16 hours left in a day, as well as the sandwich rule, if you plan your vacation properly, there’s a good chance you can make the entire trip tax deductible, or at least the majority of it. And that is the beauty of these rules and how so many people always go around saying that they deduct their vacations. Another thing to consider is where you buy your rental properties. If you really like to go on trips to a certain destination, it might make sense to build a rental portfolio. Of course, if it makes sense from an investment perspective, in a certain market, let’s say Orlando, Hawaii, that’s why you hear people investing in places like Costa Rica and Belize. These are destinations that they like to travel to for vacation. And if they own properties there and they have business reasons for being in that market, they can end up writing off like I said, a large portion if not their entire cost of their trip as a business expense if they follow these rules and plan their vacation appropriately. So that’s just the quick tip for today. I know I said generally and typically a lot. And that’s because in true accounting fashion, it all depends on your specific facts and circumstances. Which is why it’s important that you speak to your tax advisers, before planning your next business trip to make sure that it is going to be deductible, or at least that you know what is deductible and what is not deductible. Lastly, if you want to learn more about deducting your business travel expenses, head on over to tax warn investors.com where you’ll find an article that Brennan wrote recently on this very topic, complete with tax court cases and citations that might be able to provide you with more insights when planning your next business trip. That’s all for today and we’ll catch you on the next episode.

Brandon Hall 8:52
Thanks for listening to today’s show. If you enjoyed the show, please find us on iTunes and leave us a review. You can also email us at contact at the real estate CPA comm with any feedback or topic suggestions, we are always taking on new clients and with the new tax laws in play. You really don’t want to navigate this alone. Let us help you save money on taxes with your accounting and CFO needs. To become a client navigate to our client page at the real estate CPA calm and fill out a webform with as much detail about your situation as possible. Thanks so much for listening. Have a great rest of your week.

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