Hi,
I have a rental property in my original country.
I am going back to the country to check on the property and the tenants and also to visit family and friends. The business with the rental property would only be one afternoon out of the ten day trip and I will be staying with family.
Would any of the travel expenses (flights cost etc.) be OK to include as a travel expense deduction with regards the rental property in my tax return?
Thanks in advance

You can claim the round-trip cost of the flight for you plus ONE day's worth of the expense on the Schedule E (the form used to report the rental income). If you are married and your wife is a joint owner of the rental property, you can do the same for your wife. You should use the GSA per diem schedule for meals and incidental expenses for the one day's worth of expenses.

If you need professional help with your return, email me at [email protected].

I disagree with ATE. I don't believe that any of the flights would be deductible in the case described above. See section 274(c) and Reg. 1.274-4.

Thanks very much for your kind advice.
My wife is coming with me, she is a joint owner in the rental property and we do a joint tax return here.

I had to go back to my country at the start of this year also (just myself) - because of a family issue there and also I coincided the trip with conducting a rental property inspection and upcoming lease agreement meeting etc.
Can I also claim this trip's return airfare and one days expenses? Or would it be pushing it?

Slight related, one more question.
I pay tax on the rental income for the property in my country. But I do this in the following year when I complete the tax return for it. (I have until October to do this but I do it in February so I have it completed before I do my American tax return).
So for example the tax is paid in 2011 for 2010 accruing of tax requirement. For my american tax return and Form 1116 - Foreign Tax Credit, is it OK to interpret this tax payment in 2010 tax return or should it go in the 2011 tax return next year? i.e. does it apply to when the tax was paid or when it was accrued?

When I get all the right stuff together ill certainly be in touch.

While the IRS generally allows TWO trips per year for property inspections if the property is in the United States, only ONE trip per year is allowed for inspection of properties in another country. Further (and I think this is the point IntlTax was trying to make), the PRIMARY purpose of the trip must be to conduct rental property inspections, NOT to go on vacation. If the IRS determines that the primary purposes o the trip is vacation, then they will deem the trip to be PERSONAL in nature and will NOT allow any deduction for the trip at all.

If the vacation time is incidental to the trip, then the expense for the travel must be allocated between the business and non-business portion of the trip. Given the circumstances of your SECOND trip, you could deduct only 10% of the total trip costs for yourself and your wife, and. In my opinion, it would be HARD to convince the IRS that the PRIMARY purpose of the trip was to do rental-related business, given that only ONE day out of TEN is dedicated to that purpose. BTW, it is an easier sell if the total trip is LESS than one week.

Given these facts, the FIRST trip is probably the best course of action to claim as the inspection trip, especially if the time in country was LESS than seven days, because you not only inspected the property, but you also conducted the lease agreement meeting at that time.

As for the taxes, you can deduct the cost of the taxes in the year the taxes were actually paid. The deduction is claimed on Schedule E, NOT Form 1116.

Ok thanks.
The first one I arrived on a Sunday and left the following Sunday - so I guess that's a week.
Honestly, primary purpopse was to see my dying granddad but I chose to do the business with regards the apartment as I would be there.

I thought, and have been told, that for there foreign taxes (on the rental income) I need to claim a credit and to do this on Form 1116.
Should I just be doing the taxes as a deduction rather than getting a credit for them? Which would work better because for some reason the credit comes out at only 54% - despite a double taxation treaty.

Yes, you can claim the property taxes paid on the rental property as a deduction.

Now, if you are paying income taxes on the rental INCOME, those taxes require the use of Form 1116 to claim the Foreign Tax Credit on passive income, and that SHOULD be a dollar-for-dollar credit.

The first trip is exactly one week, so you should be okay there.

Ok thanks.
We don't have property taxes so it only income taxes on the rent received.
I guess something messed that only gave me 54% credit. Ah well.

Thanks for the clarifications.

The reason for the 54% MAY have something to do with the Alternative Minimum Tax, but that can be adjsuted to allow for the full dollar-for-dollar credit.

ATE, do you really believe that the cost of the first trip can be deducted when the primary purpose was for personal reasons?

Also, you should really look at sec 274 and the regulations thereunder. You seem to have a fundamental misunderstanding of the rules.

From IRS publication 463 (page 6):

Quote:

---

If your trip was primarily for personal reasons, such as a vacation, the entire cost of the trip is a nondeductible personal expense. However, you can deduct any expenses you have while at your destination that are directly related to your business.

---

See page 7 of IRS publication 463 for rules related to travel outside the U.S.

IntlTax:

I believe the purpose of trips CAN be combined, and the FIRST trip meets the criteria for being a combined trip. The IRS understands that most people live in the real world, and WILL take trips for multiple purposes for economic reasons. I backed off deducting the second trip when I read the pubs you cited and the IRC citation, and the OP will have to properly pro-rate the costs of the trip, but I would be willing to defend the partial deduction of the first in an audit if necessary.

Thanks guys for the discussion.

Seems like just a matter of opinion about the trip. I can just as easily say the purpose of the trip was to deal with the rental property stuff and whilst I was there saw family and friends. And I wouldn't be lying.
I don't care about any expenses whilst I was there - I do not need to claim for a sandwich I may have eaten. I just want to claim the return airfare costs.

The travel costs for the first trip would not be deductible at all because the primary purpose was to see your granddad.

If the primary purpose of the second trip is for business reasons, only a portion of the travel costs for the second trip would be deductible. Since you indicate that you will spend only one afternoon out of the ten day trip on the rental property, you would only be able to deduct, at most, one-tenth of the flight costs.

Quoting from Page 7 of I.R.S. Publication 463:
Travel allocation rules. If your trip outside the United States was primarily for business.. . [t]o figure the deductible amount of your round-trip travel expenses, use the following fraction. The numerator (top number) is the total number of business days outside the United States. The denominator (bottom number) is the total number of business and nonbusiness days of travel.

If 95% or your time is spent visiting family and friends, it may be hard to maintain the argument that the primary purpose of the trip was for business reasons. The I.R.S. further provides “If you travel outside the United States primarily for vacation or for investment purposes, the entire cost of the trip is a nondeductible personal expense.” (Quoting from Page 8 of I.R.S. Publication 463). Thus, if the property is an investment property, rather than a true business, the I.R.S. says none of the travel costs outside the U.S. are deductible.

ATE, we are not talking about defending a position on audit. We are talking about advising a taxpayer as to what position he can take on a tax return. These are two entirely different things. Just because you might slip something by an I.R.S. auditor does not mean that you are allowed to advise a taxpayer to take a position on tax return that you know is unsupportable.

SRMCG:

I hate to say this, but I must concede the point to IntlTax.

I failed to see the provision about "investment purposes" in the IRS Pub 463 citation when I read the pub yesterday. That makes it black letter law vice simply a matter of interpretation. Your rental property is clearly an investment, not a business, so you cannot deduct the travel costs.

The ONLY way a deduction would be possible would be to declare the rental income on Schedule C vice Schedule E, and, based on the information provided, you do NOT meet the criteria to use Schedule C.

Sorry for the confusion.

Ok thanks. I quess we all learn.
I just learn I am being screwed even further.

I don't know how the apartment is an investment though. It was my previous home then I rented it which I would have thought turned it into a business.
And seen as I am losing so much money on it and everyone everywhere wants to get their grubby hands on money with regards it when they have nothing to do with it, I guess its turned into a very bad business or investment that I am stuck with.

I would think then the withholding cost should be an expense to the tax return here or the tax return there. But I suppose that have some little fineprint regarding that somewhere too.

Thanks guys.