As a rental property owner, you need to be familiar with the deductions related to your investment that the IRS allows you to claim. Most expenses, like repair or property management fees, are straightforward and have a transaction record.
The costs are relatively easy to track and deduct, especially with a separate bank account for your rentals and some good accounting software. However, not all expenses are as clear-cut. Some expenses, like driving for your rental activities, require additional recordkeeping and are only deductible in certain circumstances.
In this article, we’ll explore when you can claim mileage, the best method to determine the expense amount, and what the IRS requires for you to take a deduction.
When Is Mileage a Deductible Expense for My Rental Property?
According to IRS Publication 527, you may claim travel expenses for business tasks that are ordinary and necessary—meaning legitimate, everyday tasks that actually help your business. Collecting rent and maintaining your rentals are examples of ordinary and necessary tasks that would allow you to claim a mileage deduction.
Let’s say you drive to the bank to deposit a check after collecting it from a renter. Or maybe you go to the home improvement store and back from your rental. You can claim those miles.
What About Commuting Mileage?
In some situations, though, mileage isn’t deductible. Typically, the IRS doesn’t let you deduct your commute to your nine-to-five job. That travel counts as a nondeductible commuting cost, and the IRS applies the same logic for rental property owners.
However, depending on where you base the operations of your investment property business, your mileage might not count as commuting costs. If “you use your home as your principal place of business,” you can deduct those miles.
So, what counts as a principal place of business?
Your home office qualifies if you meet two requirements:
- “You use it exclusively and regularly for administrative or management activities of your trade or business.
- You have no other fixed location where you conduct substantial administrative or management activities of your trade or business” (IRS Pub. 587).
“Administrative or management activities” cover key activities for landlords:
- Billing tenants
- Issuing orders
- Recordkeeping
- Scheduling appointments
- Writing reports
For most real estate investors, that means your home office is your principal place of business.
Let’s go back to our example about picking up a rent check. What about the miles between your home and the rental unit before you’ve picked up that check?
If you manage your rental property business from your home, it qualifies as your principal place of business. You can deduct mileage starting from the time you leave your home.
What Method Should I Use to Determine My Travel Expenses?
The IRS allows you to choose one of two methods for determining your driving expenses: the standard mileage rate and actual expenses.
Taking the Standard Mileage Deduction
The easiest and most recommended method is the IRS standard mileage rate. For 2024, that rate is 67 cents per mile. So, to calculate your driving expense, take the number of deductible miles you have driven and multiply it by 0.67.
When using the standard mileage method, you may also deduct additional expenses for tolls, parking, and prorated property tax and loan interest.
Red flag alert: The standard mileage deduction accounts for fuel and maintenance costs for your vehicle. Do not take the standard mileage deduction in addition to your fuel and maintenance costs.
Using the standard mileage rate makes taking this deduction much simpler. However, the IRS monitors deductions with the potential for abuse, like mileage, so make sure you maintain your records in their preferred format.
Using the Actual Expenses Method
The other option is the actual expenses method. You take the total amount spent on the vehicle and multiply it by the percentage of total miles that were driven for rental purposes as opposed to personal use.
If you drove 12,000 miles in a year, and 1,200 of those miles were for your rental business, you can deduct 10% of your actual expenses from that year.
To use this method, you need to track and keep records for every expense associated with operating and maintaining your vehicle:
- Fuel
- Insurance
- Licenses
- Maintenance
- Oil changes
- Registration fees
- Tires
If you own the vehicle, remember to account for depreciation. If you lease your vehicle, you can include the lease payments.
Are you great at keeping organized records? Do you take infrequent personal trips in your vehicle? If so, the actual expense method may yield a larger tax deduction than the standard mileage rate. For most investors, though, tracking actual expenses is not worth the time and may lead to a smaller deduction. When in doubt, the standard mileage rate is the way to go.
What Records Do I Need in a Mileage Log for My Rental Properties?
The IRS requires you to keep your mileage records and supporting documentation in a particular way. It’s not enough to just write a note saying, “18 miles on March 1st.” To make sure your travel costs are deductible, include these items in your mileage log for each trip:
- A note of the vehicle used
- Departure and return dates
- Destination or area of travel
- Number of days spent on business during your trip
- Number of miles driven
- Odometer readings from the beginning and end of each trip
Purpose of the trip
Note: If you choose to use the actual expenses method, you’ll also need to keep records for all your vehicle-related expenses in the calendar year, in addition to the per-trip records.
Remember, keeping up with your recordkeeping as you go is far easier than playing catch-up. A smart way to monitor your mileage is to use accounting software with a built-in mileage tracker or a stand-alone system.
How Is Mileage Reported on Your Tax Forms?
For most real estate investors and rental property owners, IRS Schedule E is the standard form where you report rental income and expenses. You’ll use the Auto and Travel expense category to report mileage and other travel-related costs.
This is one area where your Schedule E will not mirror your profit-and-loss statement. Mileage (if taken at the standard rate) and depreciation expenses aren’t typically part of traditional net income or cash flow reports, as they are not directly incurred expenses.
Additionally, to claim local travel expenses—with either the actual expenses method or standard rate method—you must take an additional step. The IRS requires Form 4562, which details the vehicle used, to be filed alongside your regular return. You’ll only need to complete Part V, Sections A and B.
What About Other Travel-Related Expenses?
In this article, we’re focusing only on mileage and local travel expenses. But what about when you travel out of your local area to manage, maintain, or shop for new rental properties? The IRS also has rules governing those expenses, and we’ve got you covered. Refer to our complete discussion on out-of-town travel here.
How REI Hub Can Help
Claiming mileage deductions for your rental property business is a great way to lower your tax liability. But you’ll need clear and accurate supporting records for the IRS to count it as a valid deduction. That’s where REI Hub comes in.
Our cloud-based accounting platform has built-in mileage logs plus receipt and document storage, so you can keep your supporting records in order. And with our mobile app, we’ve made it easy for you to keep up with your mileage and travel costs on the go.
Even if you’d rather keep your detailed mileage records outside our system, you can still make a summary entry at the end of the year. Whether you’re using the summary entry or the mileage log, your deductions are automatically included in our Schedule E report.
So, if you’re on the road for your rentals, let us help with your mileage logs and deductions. Sign up for our 14-day free trial today!
