Travel costs when purchasing a rental property

My spouse and I took a trip upstate to look for a new rental property. We found a place we liked and we signed a contract while we were there. We'll return in a month for the closing. Are the travel costs for either or both of these trips tax deductible (meals, hotel, gas, mileage)? None of the trip was for pleasure -- we didn't go anywhere except around town with a real estate agent for two full days and the third day was spent signing the contract paperwork. Can we deduct the costs of the trips as travel expenses on Schedule E even though the trips took place before we placed it in service?
If not deductible, then do we add the costs of the trip to the basis of the property? Would both trips qualify or only the trip up for the closing?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On 3/10/17 4:56 PM, Vigo wrote:

Any expense you incur prior to the property being available to rent that would have been an ordinary and necessary operating expense had the home already been rental property can be categorized as start-up expense. Start-up expenses are amortized over a 180 month period starting with the first month the property was made available for rent. This would include travel expenses you incur in acquiring or starting a business (rental property). You can elect to expense up to $5000 of start-up costs without amortization as long as your total start-up costs do not exceed $50,000. Do not confuse start-up costs with organizational costs... a separate category. E.g., if you decide to create an LLC to hold your rental property, then the cost to setup the LLC is organizational cost. Any other expenses incurred in the legal creation of your rental business would also fall into this category. E.g., attorney fees. You get a separate $5000 election to expense these costs in the first year.... as long as your total start-up does not exceed $5000.
For more information see IRS Pub 535.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On 3/12/17 1:32 PM, Alan wrote:

I just remembered that renting property is considered a passive activity. As such, the section of the IRS code (195) that allows for deducting certain startup and organizational costs is not applicable. That section only relates to an active trade or business. Therefore, any expense incurred before property is made available for rent can only be capitalized into the cost of the rental property. If no rental property is purchased then one merely has nondeductible personal expense.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Wednesday, March 29, 2017 at 12:00:02 PM UTC-7, Alan wrote:

I agree with your interpretation on this. I've never been a fan of applying IRC 195 to rental properties, and believe the best you'll get is to capitalize the costs as part of your purchase price if a purchase is actually made. Otherwise, I agree, it is likely nondeductible.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Thursday, March 30, 2017 at 10:08:00 AM UTC-4, MTW wrote:

Thank you both for your help with this. Very much appreciated!
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Friday, March 10, 2017 at 7:59:57 PM UTC-5, Vigo wrote:

Thank you, Alan. We don't file a Schedule C, only a Schedule E. Does that make your answer any different? We have one other rental property besides the one that we are purchasing that we have rented out since 1979. Are we still considered "starting a business" if we've already had rentals properties for almost 40 years? We don't have an LLC.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On 3/12/17 5:55 PM, Vigo wrote:

It's been awhile since I looked at starting up a new rental but I don't believe that the law and regulations have changed. Looking to enter a new market creates new start-up costs. As to what defines a new market for rental real estate I leave to the real estate pros and tax court cases. If I were to make an educated guess, I would say that looking for real estate holdings in a new geographic area would create start-up costs. Defining "new geographic area" would require some tax research. It would probably be safe to assume that any property found in the same MLS (Multiple Listing Service) would constitute property in the same geographic area. The converse may not be true... especially in a large metro area that may have more than one MLS.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

BeanSmart.com is a site by and for consumers of financial services and advice. We are not affiliated with any of the banks, financial services or software manufacturers discussed here. All logos and trade names are the property of their respective owners.

Tax and financial advice you come across on this site is freely given by your peers and professionals on their own time and out of the kindness of their hearts. We can guarantee neither accuracy of such advice nor its applicability for your situation. Simply put, you are fully responsible for the results of using information from this site in real life situations.