Can I write off expenses while scouting for rental properties?

These expenses are not directly deductible, but if capitalized, they are included in Form 4562 for depreciation.

An investor travels to several cities to evaluate potential rental properties. The travel and lodging expenses are not deductible. However, once the investor purchases a property, the costs directly associated with the acquisition, such as legal fees, can be added to the property's basis and depreciated over time.

A calculation is required for this deduction.

If capitalizing costs, you must add these costs to the property's basis and calculate depreciation using IRS guidelines.

To minimize audit risk, keep detailed records of all expenses incurred during the scouting process, including receipts and logs of travel. Document the decision-making process and any properties considered to support the eventual capitalization of costs if a property is acquired.

IRS Publication 527, Residential Rental Property