Does drive time count toward real estate professional hours?

Where the claim comes from

Qualifying as a real estate professional can let rental losses offset wages and other income, so the 750-hour threshold matters. Owners who manage their own properties spend real time on the road between units, hardware stores, and job sites, and they want those hours to count.

The rule of thumb on social media is either "all drive time counts" or "no drive time counts." The law is less tidy. The statute does not address travel directly, and the cases turn on documentation and on what the travel was for.

What the law actually says

IRC §469(c)(7)(B) treats you as a real estate professional for a year only if more than one-half of the personal services you perform in trades or businesses are performed in real property trades or businesses in which you materially participate, and you perform more than 750 hours of services in those real property trades or businesses. Personal services as an employee do not count unless you are a more-than-5% owner of the employer. On a joint return, one spouse must meet both tests alone, though a spouse's work can count toward material participation.

Qualifying is only the first step. Each rental activity must also meet a material participation test under IRC §469(h) and Treas. Reg. §1.469-5T, unless you elect under §469(c)(7)(A) and Treas. Reg. §1.469-9(g) to treat all rental real estate interests as one activity.

Treas. Reg. §1.469-5T(f)(4) says participation may be established by any reasonable means and that contemporaneous logs are not required if other reasonable evidence exists. Work done in an investor capacity, such as reviewing statements, does not count unless you are directly involved in day-to-day management or operations.

On travel, the Tax Court in Leyh v. Commissioner, T.C. Summ. Op. 2015-27, accepted documented travel time from the taxpayer's home to her rental properties, which moved her over 750 hours. Summary opinions cannot be treated as precedent under IRC §7463(b). In other cases, including Truskowsky v. Commissioner, T.C. Summ. Op. 2003-130, the court refused to count travel that looked like commuting or included personal stops. IRS examiners are trained to question travel hours, especially when other facts suggest limited involvement.

What is true and what is not

Here is where the claim holds up and where it does not:

• Partly true: documented travel that is an integral part of operating your rentals, such as driving between properties to make repairs or show units, has been counted in at least one case.
• Not true: all time in the car counts. Commuting, personal errands combined with property stops, and travel to investor-type activities are unlikely to count.
• Not true: travel hours can rescue the half-of-your-time test. A full-time job usually means your real estate hours cannot exceed half of your total working hours.
• Not true: a year-end estimate is enough. Courts reject ballpark reconstructions; specific, corroborated logs carry weight.
• True: failing to qualify does not eliminate the losses. They are suspended and carried forward, and the $25,000 allowance under §469(i) may help if you actively participate and your modified AGI is below the phase-out range of $100,000 to $150,000.

What to do instead

Keep a time log during the year that shows the date, property, task, and hours for each activity, and log travel as a separate line with its purpose and route. Keep supporting evidence such as texts with tenants, contractor invoices, calendar entries, and mileage records. Do not rely on travel to reach 750 hours; count it only when it is clearly part of the work and not personal or commuting travel.

Track your total working hours in all jobs and businesses as well, since the second test compares your real estate hours with everything else you do. Decide early in the year whether the aggregation election makes sense for your properties, because it affects how material participation is tested.

If you are not likely to qualify, other paths may still apply, such as the short-term rental rules, active participation for the $25,000 allowance, or releasing suspended losses when you dispose of a property.

How ebotCPA helps

We compare your logs and calendar with both §469(c)(7) tests and the material participation rules, identify which hours are likely to hold up, and explain the effect on your rental losses.

Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.

Primary sources

1. 26 U.S.C. §469(c)(7)(B). Real estate professional requirements.

   “such taxpayer performs more than 750 hours of services during the taxable year in real property trades or businesses in which the taxpayer materially participates”

   Requires both the 750-hour test and the more-than-half-of-personal-services test.

2. Temp. Treas. Reg. §1.469-5T(f)(4). Proof of participation.

   “The extent of an individual's participation in an activity may be established by any reasonable means.”

   Allows any reasonable evidence of participation; §1.469-5T(f)(2)(ii) excludes most investor-type work.

3. Treas. Reg. §1.469-9. Rules for real estate professionals.

   Defines terms for §469(c)(7) and provides the election to aggregate rental real estate interests.

4. 26 U.S.C. §7463(b). Small tax case decisions not precedent.

   Provides that decisions in small tax cases, such as Leyh and Truskowsky, are not treated as precedent.

5. IRS Publication 925. Passive activity and at-risk rules.

   Explains the real estate professional tests, material participation, and the $25,000 special allowance.

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