Suppose I own a second home in a foreign country and rent out that home to someone, i.e. I am the landlord. If I take a two-week vacation in that country and at some point I stop by for an hour to examine the property, can I really deduct the cost of my trip as a business expense? I’m guessing not the entire two weeks’ worth of expenses, but can I really deduct airfare and maybe one or two nights of lodging/meals? How thorough does the examination of the property need to be in order to qualify as a “business activity”, thereby making this a “business trip?”
Yes, I know you’re not my tax attorney. Just curious.
IANAA, but… generally the rules applied are “reasonable”, “necessary” and “relevant” expenses.
I would imagine it would be something like “what proportion of your trip was spent doing property management tasks?” and the costs could be apportioned based on that percentage. Did you really need to visit the island paradise to sign the insurance agreement, would it have been possible to do by fax? …and so on.
I compare this to running a company vehicle. In Canada, IIRC since it’s not relevant to my situation, I understand you can charge the company car as a business expense - but you need to keep a log - when and how far you drove for work, how far for personal reasons. Then you can prorate expenses based on that ratio of personal use to business use. Ditto for using a portion of the house as a business office… what proportion of the house, then split house costs by that percent.
You can deduct “ordinary and necessary” expenses if the primary purpose of your trip is business-related. So one day out of 14 probably isn’t going to cut it.
Yes, and this rule is especially strict with international travel.
What I advise my clients to do is take any expenses that can be directly or exclusively associated with the business purpose. For example, if your side trip to check on the rental property required you to pay tolls on a bridge and eat a meal while in that town doing business, I see no problem taking those two particular expenses. But airfare and lodging? 1 day out of 14 isn’t going to make the primary purpose of the trip business-related.
As someone who lived overseas and still has foreign assets, one thing that has stood out is never, ever cheat and/or play games with Uncle Sam when it comes to foreign assets. It will get you placed on the IRS audit list forever. Yes, forever.
In the USA, the IRS allows you to deduct the cost of a business trip. But if the trip is partly for business and partly for pleasure, you’re supposed to calculate which fraction applies to each and deduct only the portion of the trip which is business related. If you spent 1 hour doing business and 99 hours having fun, you can only deduct 1% of your expenses for that trip. This is explained in the IRS publication which talks about business travel.
But if the fraction of the trip which is for pleasure is some small fraction, say less than 10%, I doubt the IRS would care. I mean, if you travel to a business meeting, spend 12 hours in a conference room, and then after dinner you go out and see a movie, chances are nobody will care that your trip is only 6/7 business and 1/7 pleasure.
That’s not how it works. It’s an “all or nothing” rule; either the primary purpose is business, in which case the ordinary and necessary expenses are deductible, or it is not and they are not.
As dracoi explained, the only portion you can deduct for a non-primarily-business trips are those which are solely related to the business activity, like making a copy of the lease or taking a cab from your hotel to inspect the property.
Drat. I shouldn’t have posted first and looked for a cite afterwards. Turns out I was only half right. If the trip is 90% business and 10% personal, you can deduct 90% of the travel expenses. But if it’s 10% business and 90% personal, you can’t deduct any of the travel expenses.
I think you’re oversimplifying here. There are four scenarios. #1 It’s all business and all the travel is deductible. #2 It’s mostly business, some personal, so the business portion is deductible NOT THE ENTIRE COST OF THE TRIP. #3 It’s partly business but mostly personal, in which case none of the travel expenses are deductible. #4 It’s entirely personal, and nothing’s deductible.
Agreed. But that’s scenario #3 above (which I was previously wrong about) and scenario #2 isn’t “all or nothing”, it’s proportional. Quoting from IRS publication 463… Example: You work in Atlanta and take a business trip to New Orleans in May. Your business travel totals 850 miles round trip. On your way, you stop in Mobile to visit your parents. You spend $2,165 for the 9 days you are away from home for travel, meals, lodging, and other travel expenses. If you had not stopped in Mobile, you would have been gone only 6 days, and your total cost would have been $1,860. You can deduct $1,860 for your trip, including the cost of round-trip transportation to and from New Orleans.
So let’s go back to my example. I said you spend 12 hours in a conference room, and 2 hours watching a movie. If you paid $320 for a plane ticket, $120 for the hotel room, $15 for the movie, then you can deduct the $440 but not the $15. I previously said it technically should be (12/14)*$455 but most people go ahead and deduct the whole thing anyway. I was wrong about that. The time spent watching a movie does not affect your hotel cost or your plane ticket. However, if you stayed an extra day to go to a rock concert, then not only is the concert ticket not deductible but the second night’s hotel cost isn’t deductible either. But you still get to deduct the entire cost of the plane ticket.
Getting back to the O.P. if it’s primarily personal, you can’t deduct any of the plane tickets or the hotel room. But you could still deduct things like office supplies, or maybe the taxi ride to and from the rental house.
I think I know a way you could make part of it business. Take your personal vacation to a different city, then make a side trip to the place where the rental property is. Let’s say you live in New York and own a house in Mexico City. Fly from New York to Cancun for personal, stay there for two weeks. Then one day say “Hey I need to interrupt my vacation to go take care of some business”, hop on a plane from Cancun to Mexico City, check out the house, fly back to Cancun the next day. Now your plane ticket from CUN to MEX is deductible, as is your hotel cost in Mexico City. But nothing you spent in Cancun, or getting there from NY, is deductible.
sbunny, don’t forget to keep reading your own cite. The OP asked about a foreign country and the travel rules for foreign countries are actually different than for the contintental US. So what is permitted for a trip to New Orleans may not work the same for foreign travel.
I’m referring to the fact that, when you buy your plane tickets and pay your hotel bill it is not true that those expenses are either 100% deductible or 0% deductible. The truth is that, if the trip is primarily for business and partly for personal, the IRS expects you to figure what the plane ticket and hotel would have cost you if you had skipped the personal stuff completely and that’s the portion of what you actually paid which is deductible and the rest is not.
I see that the foreign travel rules are a bit more complicated but I didn’t see anything there that contradicted what I said about the OP. A two-week trip which is 13 days personal and 1 day business is not deductible but maybe if you broke it up into two trips you could say one trip is deductible and the other isn’t. Although it may be worth mentioning that the rules seem to be saying that if it’s less than 7 days you can count the whole thing as business even if part of it was personal. So you could do 6 days personal, 1 day business, and deduct the entire trip. Am I reading that right?