Agent advice, Contributor Article, Industry News

2 roads for claiming tax deductions on business miles

Real estate tax talk

For many real estate professionals, your largest tax deduction may be the business miles you drive. There are two ways to deduct your mileage: You can (1) deduct your actual expenses for gas, depreciation, repairs and other car expenses; or (2) take the standard mileage deduction, which is 55.5 cents per mile for 2012.

Whichever method you use, there’s a simple way you can maximize your business miles: Use a home office for your real estate business.

Commuting is not deductible

Most real estate professionals have an office where they work on a regular basis. Unfortunately, you can’t deduct the cost of traveling from your home to your regular place of business. These are commuting expenses, which are a nondeductible personal expense item.

Example: Kim, a real estate broker, runs her business from an office in a downtown office building. Every day, she drives 20 miles to and from her suburban home to her office. None of this commuting mileage is deductible.

Even if a trip from home has a business purpose — for example, to deliver important papers to your office — it is still considered commuting and is not deductible. Nor can you deduct a commuting trip because you make business calls on your cell phone, listen to business-related tapes, or have a business discussion with an associate or employee during the commute.

Home office eliminates commuting

However, if you have a home office that qualifies as your principal place of business, you can deduct the cost of any trips you make from home to another business location. You can get a lot of travel deductions this way. For example, you can deduct the cost of driving from home to an open house. The commuting rule doesn’t apply if you work at home because with a home office you never commute to work (you’re there already). This can greatly increase your deductible business miles.

Your home office can qualify as your principal place of business even if you regularly use an outside office. All that is required is that you:

  • you use the office exclusively to conduct administrative or management activities for your business, and
  • there is no other fixed location where you conduct substantial administrative or management activities.

This means that you can qualify for the home office deduction even if your home office is not where you generate most of your business income. It’s sufficient that you regularly use it to administer or manage your business; for example, to keep your books, schedule appointments, do research. As long as you have no other fixed location where you regularly do these things — for example, an outside office — you’ll get the deduction.

Example: Kim (from the above example) maintains a home office where she does the administrative work for her real estate business; she also has an outside office where she does her other work. She can deduct all her business trips from her home office, including the 20-mile daily trip to her outside office. Thanks to her home office, she can now deduct 100 miles per week as a business trip expense, all of which was a nondeductible commuting expense before she established her home office.

Stephen Fishman is a tax expert, attorney and author who has published 18 books, including "Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants," "Deduct It," "Working as an Independent Contractor," and "Working with Independent Contractors." He welcomes your questions for this weekly column.

Contact Stephen Fishman:
Email Email Letter to the Editor Letter to the Editor