Rental Mileage

[Armando Beaujolais]

You can't deduct commuting to your job. How does the rule work with regard to rental property?

I've been looking in code, regs and other sources, and the rules appear to apply to both a job and also income-producing property.

-armando

[Bees Knees]

Rental mileage

I have always treated rental mileage like a temporary work location. If you have a regular place of business (the W-2 job), and you have rental property, the rental location would be a temporary work location. Mileage from home or your regular place of work to any temporary work location is deductible. However, if the rental activity was your main activity, then mileage from home to the rental property would be like any other commuting; non-deductible. Just think of the rental activity like any other job. Is it the main job, or is it a second job?

[Lance Emerson]

Conflicting Information

Armando,

There seems to be conflicting information about whether non-deductible commuting rules apply to auto expenses incurred in connection with rental property.

IRS Pub 527 states, "You can deduct your ordinary and necessary local transportation expenses if you incur them to collect rental income or to manage, conserve, or maintain your rental property."

Pub 527 does not mention nondeductible commuting with regard to rental activities.

However, Regulation 1.212-1(f) states, "Among expenditures not allowable as deductions under section 212 are the following: "Commuter's expenses;..."

Section 212 applies to trade or business income as well as rental income. The regulations do not distinguish between trade or business income or rental activity.

[Bees Knees]

Commuting Expenses

IRS Pub 527 simply makes the statement that you can deduct mileage to collect rent and maintain your rental activity. IRS Pub 463 is where you go into all the non-deductible commuting rules in regards to a trade or business. The limitations on a trade or business do not seem to apply to deductible mileage for other things, such as charitable miles, moving miles, or medical miles. In fact, IRS Pub 526 specifically says that a charity is not a trade or business and therefore, the trade or business limitations do not apply.

I also did a search on Court Cases and found a few where mileage deduction for a rental was an issue, but not because of any commuting expenses. In fact, Curphey v. Commissioner, 73 T.C. 766 seemed to give the taxpayer a deduction for going to his rental property even though the taxpayer's main line of work was different than his rental activity.

I don't think it is really that big of an issue. If you had to follow the strict commuting rules mentioned in IRS Pub 463, I think they would refer to them in Pub 527 when they say you can deduct mileage for a rental activity.

[Nashville]

Old Hat

Ghosts of posters past...

Just wanted to see if some of these folks were still awake...

Also goes to show that this TMI board has a wealth of information and tons of prior discussion. Very useful unless some of it has been superseded by recent legislation.

[DTS]

Nashville

I see one of these once in awhile. I still love to read the heated discussions between Armando and Bees and the way any bystander in the wings would get sucked up into their discussions.

These were special. Very entertaining, but very informative, as well.

[AJsTax]

Mixing two different situations

I have always treated rental mileage like a temporary work location. If you have a regular place of business (the W-2 job), and you have rental property, the rental location would be a temporary work location. Mileage from home or your regular place of work to any temporary work location is deductible. However, if the rental activity was your main activity, then mileage from home to the rental property would be like any other commuting; non-deductible. Just think of the rental activity like any other job. Is it the main job, or is it a second job?

Bees,
I know from your posts you know the rules as well as any of us and better than most of us, but temporary work location and second job are not the same. If I drive from home to the first job it is commuting miles of course, if I drive from the first job directly to the second job it is business miles. When I drive home from the second job it is commuting miles. If I drive home after the first job and then from home to the second job, even in the same day, it is all commuting miles.
We have never applied these rules to passive rental income/expenses. If the client has a record of miles driven to take care of the rental we normally allow all of it. I have never considered the non-deductible rules for rentals. Maybe I should??? I don't believe so at this point.

[Bees Knees]

We have never applied these rules to passive rental income/expenses. If the client has a record of miles driven to take care of the rental we normally allow all of it. I have never considered the non-deductible rules for rentals. Maybe I should??? I don't believe so at this point.

The commuting rules listed in the chart on page 10-2 of TTB comes from IRS Pub 463, page 14. The rules listed in IRS Pub 463 are based in part on Rev. Rul. 94-47.

http://www.novoco.com/low_income_housing/resource_files/irs_rulings/revenue_rulings/rr_94_47.pdf

Rev. Rul. 94-47 is where the IRS clarified what is considered non-deductible commuting expenses, verses deductible job to job mileage.

Rev. Rul. 94-47 says that it is for purposes of determining IRC §162, trade or business expenses.

Investment expenses, on the other hand, fall under IRC §212, expenses for the production of income. Nothing in Rev. Rul. 94-47 makes any reference to IRC §212.

On the surface, it would appear that the non-deductible commuting rules of Rev. Rul. 94-47 do not apply to passive rental activities, since they fall under IRC §212 rather than IRC §162.

However, when you look at Regulation Section 1.212-1, Nontrade or nonbusiness expenses, we find the answer.

Reg. §1.212-1(f) says:

Among expenditures not allowable as deductions under section 212 are the following: Commuter's expenses; expenses of taking special courses or training; expenses for improving personal appearance; the cost of rental of a safe-deposit box for storing jewelry and other personal effects; expenses such as those paid or incurred in seeking employment or in placing oneself in a position to begin rendering personal services for compensation, campaign expenses of a candidate for public office, bar examination fees and other expenses paid or incurred in securing admission to the bar, and corresponding fees and expenses paid or incurred by physicians, dentists, accountants, and other taxpayers for securing the right to practice their respective professions. See, however, section 162 and the regulations thereunder.

Note that the Regulations for investment expenses specifically mention commuter’s expenses as being non-deductible, and that it also mentions the regulations for Section 162. Thus, in my opinion, the same commuting expense rules that apply to Section 162, as described in Rev. Rul. 94-47 should also apply to Section 212.

[Snaggletoof]

Disallow all mileage

What Bees has portrayed is yet another weapon in the IRS arsenal to disallow mileage.

What started to be a curb on abuse by self-employed commuters has turned in to a situation where IRS can disallow just about anything they wish, even if it is reasonable.

By not allowing mileage incurred on investment property, or mileage to a second job if it is in lieu of driving to a primary job during a scheduled workday, or mileage incurred because one is working an entire metropolitan area, or mileage because someone has no tax home, or mileage which does not exceed 2%...

I claim typically 20,000 miles per year. There is a log with all the relevant information, and the mileage is real. My clients, tax and other corporate customers, are spread out over a wide geographic area. And most of the work is done at my home, as I gather work and bring it home with me. I don't know how any of it could be illegitimate, but IRS could conceivable arbitrarily rule that all the mileage is in a single metropolitan area which spans a radius of 130 miles and includes three separate cities, all of whom have populations exceeding 250,000 people.

Yesterday was the four-year anniversary of the original post. Hence the fourth birthday of the message board.