When it comes to business travel expenses in the rental industry i.e. rental property expenses, the rates are a little different. While most homeowners have to worry about staying within their budget, many owners in the rental industry are able to capitalize on a larger tax write-off for mileage and other business travel expenses. This means that these costs can be offset against federal taxable income during tax time.

In 2016, the IRS took the opportunity to update its position on how much of these costs can be deducted. The new rate was set at a maximum deduction of 56.5 cents for every mile driven. This means that 98.5% of all business travel expenditures were not subject to this deduction.

The IRS stated that this would only encourage excessive driving, therefore raising the probability of an accident, and would have a negative impact on fuel efficiency since it encourages drivers to drive unnecessarily long distances during their workday. This is especially true for owners with smaller fleets whose states' fuel taxes range between two cents and four cents per gallon in most cases (California has no tax).

For further clarity, this 56.5 cent figure was not calculated using only the federal rate of 54.5 cents per mile. This rate does not include the cost of vehicles or repairs, which are two of the biggest expenses an owner has to their name. Therefore, for every mile driven in the course of business that is deducted on tax documents, it is figured as 23% of its total cost (assuming that a company's vehicle depreciates at 23% per year). This means that every 100 miles driven in this manner equated to $23 worth of expenses after depreciation is taken into consideration.

Compare this to the standard deduction for mileage in the rental industry, which is 57.5 cents per mile. This means that every 100 miles driven in the course of business equate to $57.50 of expenses after depreciation is taken into consideration. This may seem insignificant, but as many owners know, this can add up quickly over time, especially if the owner already has a high rate of mileage due to their business model and any necessary trips outside of work hours.

Additionally, if an owner leases vehicles for their business from a company or from another owner, they will be able to deduct these costs separately from the IRS as long as they are not deducted elsewhere on a tax return (i.e. while renting to another person).

When the IRS first published its new deduction rates in 2016, there was a great deal of uproar by many. Many owners felt that this would discourage them from taking advantage of their business and could even deter them from starting new rental properties. In addition, many owners thought that the IRS was not considering all sorts of other expenses, such as material costs, which are very common in the industry and will only continue to grow as rentals become more popular due to millennials wanting to rent instead of buy.

The National Association of Realtors (NAR) also chimed in on this issue and came out with statements training their members on how best to deal with it. In particular, Ron Phipps, a CPA, and member of the NAR stated that his position was to take the new deduction rate of 56.5 cents per mile into consideration before trying to come up with an effective solution. What he found was that this new change was effective enough in deterring owners from taking advantage of fraudulent mileage claims and even led to higher tax returns for those who planned ahead accordingly.

The 2016 ruling from the IRS is now more than three years old at this point in time and there have been many predictions for what will happen with the housing market in 2020.

With the continued growth of the real estate market, there is no doubt that owners will be using more vehicles in their business and driving more miles than they have ever done before. As a result, it will be important for owners to pay attention to any upcoming changes in deduction rates as travel expenses continue to grow.

What should you do if you get an audit? Are you still safe? What about seasonal factors and tenant expenses? A good accountant can help you navigate this obstacle.

The standard mileage rate is based on a 52-week (four-quarter) measurement period from January 1 through December 31. Catch-up payments are sometimes due to certain taxpayers who do not use the standard mileage rate but instead claim actual costs.

Local business travel expenses

If you are a rental owner, the cost of business travel can have a significant impact on your bottom line. And while it's hard to keep track of every expense and receipt, we can help.

Starting in 2020, the standard mileage deduction is 54 cents per mile. That will increase to 57.5 cents per mile in 2021 and 60.5 cents per mile in 2022 for business miles traveled outside the U.S., so plan accordingly!

The IRS says you can deduct the operating expenses for business travel in three ways:

Before we start, understand that you are able to deduct expenses related to business travel in two different ways: as an employee (or self-employed) or a rental owner. If you're self-employed, you can choose between two methods for calculating your deduction.

Income vs. Expenses

What's the difference between income and expenses? For example, if the property generated $6,000 in gross rental income, but you spent $5,000 on repairs and upgrades, or on management fees and commissions, what is net profit? The answer is net profit = income - expenses.

Business travel often consists of a mix of both income and expenses. If you're a rental property owner with rental property expenses who owns and operates another building in addition to your primary rental, any business travel that takes place within the building where you live as well as outside the building is a business expense.

How much can I claim?

The tax code allows deductions for costs related to one business (or professional service), but not four. That means that if you run more than one rental property, or if you have employees who own rental properties, then some or all of your business expenses can be deducted on Schedule C of Form 1040. In this case, your actual deduction will depend upon each particular calculation. The IRS lays out several types of businesses here.

If you have other business expenses related to your rental property, there are a number of ways you can write them down on Schedule C, including:

I. General Business Expenses

1. Repairs and Maintenance Expense– This type of expense is defined as "Any amount paid or incurred for labor or services rendered in the operation of any trade or business." This covers costs that don't fit into other categories. (Check out our article on repairs and maintenance for rental properties.) This type of expense can be written for an entire year, not just during a single trip.

2. Utilities and Supplies Expense – These are expenses paid for business use of your rental property. The IRS says that you can deduct the cost of telephone service, landscaping and security systems as utilities. The definition of "supplies" is any expense related to the production or distribution of income. That includes office supplies, cleaning products, and laundry service. This type of expense can also be written for an entire year, not just during a single trip.

3. Advertising Expense – You can also deduct any advertising or promotion expenses you pay for in order to attract tenants or generate interest in your property. For example, if you advertise online using Google AdWords, this would be an advertising expense. The IRS says that you should count only the first $100 of these expenses per year. They also say that if you pay for online advertising in another country, the first $500 of expense is deductible.

4. Collection Expense – You can deduct any collection expenses charged to tenants as part of rent or fees including legal services, attorney fees, and court costs. This expense is not allowed for business travel, but it can be deducted when renting out a property as a rental owner.

5. Other Business Expenses – The IRS says that "Other business expenses" include any expense you incur in operating a business other than rental property or related activities. This is an example of a business expense that may or may not be deductible. The IRS says that you can generally deduct any ordinary and necessary expense if it meets a two-part test:

The first part of this test is described in 26 USC 162(a), which basically states that you can deduct expenses related to your business as long as they are ordinary and necessary. This means that if the expense is common among other similar businesses, then it's probably "ordinary." Also, for an expense to be considered necessary, it must be related to the operation of your business. That means it's typically only deductible if it's something most people would accept as being a normal cost of running the business.

The second part states that if you can fulfill these two requirements, then the expenses must also "add to the production of income." This means that the expense must be an "integral and indispensable part of a broader activity" that helps run your business.

What type of travel business expenses are deductible?

A business expense is an expense you incur when conducting business for your company. Business expenses generally are deductible if the expense meets IRS requirements.

What are some common deductions?

Some common deductions are: -travel and entertainment expenses -interest and taxes paid on investments, -advertising and sales promotion expenses, -depreciation on equipment, -medical and dental insurance premiums, -rental property losses (deductible only after a net loss of more than $10K in rental income), -self-employment taxes (deduction for Social Security contributions). It's important to keep records of all these types of expenditures to ensure that you can receive the deduction under the right category.

What are the tax deductions for business travel?

There are four categories of travel deductions. Expenses for these types of travel are:

• ordinary and necessary,
• deductible if they're directly related to your business,
• deductible on the day you incur them or within one year, and
• not included in income (outside your taxable income). These categories of travel expenses include:
• business-related meals and entertainment;
• meals while on a business trip away from home (more than 50 miles away) that aren't provided by your employer;
• travel expenses incurred when traveling away from home.

These are the things on rental property expenses in business travels that you need to know.

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