Vehicle Use Allocation

[ILLMAS]

TP has about 18 properties and out of the 18, 14 are within a 1 mile radius. His home is about 10 miles away from the properties, also if he is around the area he is always looking to buy more properties. What would be a good way to allocate the vehicle use amongst the 14 properties? I should I just create 1 fixed asset on 1 property and then allocate to the rest using a % on rent collected? FYI there is no mileage log.

Thanks

[jainen]

>>there is no mileage log<<

According to the law, there is nothing to allocate.

[michaelmars]

WITH 18 properties does he have an office somewhere? or official place of business?

[ILLMAS]

WITH 18 properties does he have an office somewhere? or official place of business?

In the past he did have an office (management office) in one of the buildings, but since 2008 he moved his office to his home.

[Gail in Virginia]

He still needs a written record of his mileage to be able to deduct for it, as Jainen pointed out in his inimitable way.

[Jack from Ohio]

Agree with Jainen. No mileage record, no vehicle expense deduction. I challenge you to find anyone who has won in audit with no mileage record.

[Randall]

Agree with Jainen. No mileage record, no vehicle expense deduction. I challenge you to find anyone who has won in audit with no mileage record.

He has a mileage log. It's in his head. You need to convert it from his head to a piece of paper.

[jainen]

>>He has a mileage log. It's in his head.<<

That's nonsense. He is not tracking business usage for 18 properties while "always looking to buy more" in his head. He is not using ordinary business care in his required record-keeping, and so is not eligible to deduct vehicle expenses.

Of course it's a lot of work for so many properties. Some taxpayers wouldn't bother about the close-in stuff, figuring it's not worth it. But he can't have it both ways, easy records and a deduction too. Remember, the standard for documenting transportation costs is substantially higher than for anything else except meals and entertainment.

The original question was, "What would be a good way to allocate the vehicle use amongst the 14 properties?" A good way would be to implement a bona fide system of recording the time, cost, and business purpose of the vehicle use. The real estate industry has managed to get approval for extrapolating annual usage from a three month test period when the taxpayer can demonstrate that it is consistent with the entire year, so there is still time to set something up for 2010. Too bad about 2009, but he can't claim he didn't KNOW he was supposed to keep track of his expenses.

[michaelmars]

""real estate industry has managed to get approval for extrapolating annual usage from a three month test period ""

How did you know this? YOu come up with stuff like this all the time and i was wondering what research or newsletters you regularly read. This sort of info comes in handy but isn't in the PPC or other services we subscribe to here.

[jainen]

>>How did you know this?<<

As I recall, this idea of sampling a period of time doesn't have very good authority, but it is touted in real estate industry tax guides. I think it comes from a Tax Court Memorandum Ruling or something else pretty low-level. I have never actually recommended it before, because someone who isn't keeping records anyway is not going to make a credible argument about how certain months are typical of the entire year. In other words, it is generally used just to get by with less than adequate records, while the true purpose should be to MORE accurately reflect the vehicle usage with short-term fluctuations over the entire year.

My first level of research is usually Quickfinder (My link). That generally cites the regs or rulings involved, so for details I turn to RIA Checkpoint (My link), especially the primary sources. In the last year or two I have relied heavily on the very fine website run by the IRS. I go straight there to view forms and instructions when the issue is HOW to report. The fastest way to use it is to Google search for the Form or Pub number. The official IRS version is almost always the first thing listed--I really appreciate that they put a lot of effort into staying ahead of the commercial distractions.

[TAXBILLY]

""real estate industry has managed to get approval for extrapolating annual usage from a three month test period ""

How did you know this? YOu come up with stuff like this all the time and i was wondering what research or newsletters you regularly read. This sort of info comes in handy but isn't in the PPC or other services we subscribe to here.

From the IRS:

Sampling. You can keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year. You must demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year.

Example.

You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. There is no other business use of the car, but you and your family use the car for personal purposes. You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. Invoices and bills show that your business use continues at the same rate during the later weeks of each month. Your weekly records are representative of the use of the car each month and are sufficient evidence to support the percentage of business use for the year.

taxbilly

[michaelmars]

we have checkpoint too but i find it very user unfriendly, you seem to find specific references very quickly. i think it was you who cited CA law the other day in a post. i probably just need a tutorial after 10/15 on drilling down in checkpoint and how to properly do a search.-thanks

btw-i had a few audits where we did sampling and even a few where we used the current year to support a prior year deduction that the client "guestimated". Not something i recommend but it either gets accepted or acts as a starting point on negotiations. Most agents will allow something if it appears reasonable

[jainen]

>>it was you who cited CA law<<

Checkpoint doesn't have state stuff. It is hard to search and even harder to browse because it covers so much. That's why I go to Quickfinder first to get the reg section, then go look up the specific citation. Once you get close the hyperlinks work great.

[Randall]

we have checkpoint too but i find it very user unfriendly, you seem to find specific references very quickly. i think it was you who cited CA law the other day in a post. i probably just need a tutorial after 10/15 on drilling down in checkpoint and how to properly do a search.-thanks

btw-i had a few audits where we did sampling and even a few where we used the current year to support a prior year deduction that the client "guestimated". Not something i recommend but it either gets accepted or acts as a starting point on negotiations. Most agents will allow something if it appears reasonable

He knows he has 18 properties. He knows the location of these properties. He knows the distances. He should know approximately how many trips he's made. He can use repair and oil change invoices to see his odometer readings at specific dates. I think he has enough information to make a reasonable estimate of his business usage. Yes, by all means, from now on, get him on a log.

[michaelmars]

>>it was you who cited CA law<<

Checkpoint doesn't have state stuff. It is hard to search and even harder to browse because it covers so much. That's why I go to Quickfinder first to get the reg section, then go look up the specific citation. Once you get close the hyperlinks work great.

Thanks i am going to try that next time