Drive Time Increases Odds of Deducting Rental Property Losses
By If you own rental properties, you know the frustration: your losses do you no good until you qualify as a tax law–defined real estate professional and materially participate in the properties. Both of these tests turn on hours, and the real estate professional test alone requires 750 hours.
Here is a source of hours that many owners overlook: your drive time to and from the rentals.
The IRS says in an old audit guide that travel time should not count. But that guide dates to 2005, states on its face that it may not be cited as a technical position, and rests on a single summary opinion that by law cannot serve as precedent.
And the Tax Court has done the opposite. In the Leyh case, the court allowed the owner’s drive time to her rentals and let the couple deduct a $69,531 loss. In another matter, the IRS itself relented and allowed the drive time once the taxpayer surfaced her home office.
That home office is the key. When your home office qualifies as your principal place of business for the rental activity, trips from home to your properties become business trips. You gain three things: the home-office deduction, vehicle deductions on mileage that would otherwise be non-deductible commuting, and hours toward both participation tests.
One warning: Drive time helps only if you can prove it. Log each trip as you go—date, destination, miles, time, purpose, and which spouse drove. Reconstructed logs invite trouble.
Two more 2026 items: Consider electing to treat all your rentals as a single activity, and note that the excess business loss cap is now $256,000 ($512,000 joint) and permanent.
If you want to discuss your drive time, please call me directly at 408-778-9651.