I report the costs of my existing rental properties on Schedule E. Where do I report the costs for searching for new rental properties, whether a purchase is made or not?

[Beeboppen]

I report all of my rental properties on Schedule E. I am not a real estate agent and do not have my own business, but I am a real estate investor. However, I am always searching for new homes to purchase. Where do I report the costs incurred while searching for new properties (auto, meals, hotel, etc.)? Can I also report these on Schedule E? And can the time spent on searching for new properties be used in determining if I spend at least 750 hours per annum as a "real estate professional"?

[MichaelDC · Accepted solution]

Unfortunately, no deduction is allowed for travel in a general investigation or search for new business or investment opportunities.

When you  travel to explore a specific investment opportunity and you make the investment, your travel expenses are not deductible; they are added to the basis of the investment.

Again unfortunately, being a "real estate professional" doesn't change this rule. Of course, your travel expenses to service your present properties is deductible.

[Beeboppen]

Can I use the hours spent looking for new investment properties in my 750 hours for the "real estate professional" designation?

[MichaelDC]

Here's what the IRS says about it. Thanks.
 "You qualified as a real estate professional for the year if you met both of the following requirements.
• More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.
• You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated.
  Don’t count personal services you performed as an employee in real property trades or businesses unless you were a 5% owner of your employer. You were a 5% owner if you owned (or are considered to have owned) more than 5% of your employer's outstanding stock, outstanding voting stock, or capital or profits interest.
  If you file a joint return, don’t count your spouse's personal services to determine whether you met the preceding requirements. However, you can count your spouse's participation in an activity in determining if you materially participated.
Real property trades or businesses.   A real property trade or business is a trade or business that does any of the following with real property.
• Develops or redevelops it.
• Constructs or reconstructs it.
• Acquires it.
• Converts it.
• Rents or leases it.
• Operates or manages it.
• Brokers it."