Before the Tax Reform Act of 1986, you could deduct your rental property losses.

Now, 40 years later, to deduct your rental property losses against your other income, you must both

1. 1.  qualify as a tax law–defined real estate professional, and

   2.  materially participate in the property or properties that caused the losses.

Tax law uses a number-of-hours test for both the real estate professional classification and the material participation requirement.

The drive time you spend on your rentals can help. Many rental property owners fail to include their drive time as rental property participation time.

Further, the IRS has a publication that says you can’t include drive time. But as you will see in this article, making your drive time count as rental property participation time is a strong possibility.

Add This Important Trigger for More Drive Time: A Home Office

When your home office is your principal place of business for your rental properties, your trips from your home to the rentals are business trips.

Now you win three ways:

1.  The home-office deduction.

2.  Bigger vehicle deductions.

3.  More hours to help you pass the tax code–defined real estate professional and material participation tests.

And the mileage itself can be a big deal, as many rental properties fail to produce any deductible mileage because of the first-and-last-stop rule.

Example. You have no office inside or outside your home for your rental property activity. You drive to and from a rental that’s 25 miles away. You have 50 miles of personal use.

But if you have a home office that qualifies as a principal office, you have 50 miles of tax-deductible business use.

Put 2026 rates on that. The business standard mileage rate is 72.5 cents a mile for miles driven January 1 through June 30, 2026, and 76 cents a mile for miles driven July 1 through December 31. The IRS raised the rate in the middle of the year because of fuel prices, so your 2026 mileage log needs a first-half subtotal and a second-half subtotal.

At the second-half rate, that 50-mile round trip is worth $38. Make it once a week, and you have created about $1,976 of vehicle deductions where you had none before.

Okay, what about the time part?

Now that you have a home office and you are traveling for business to and from your rentals, you likely increase the odds that you have business time that counts for both

1. 1.  the tax law–defined real estate professional requirement of at least 750 hours, and

   2.  the tax law–required material participation time for each individual property or, if grouped, for the group.

Example. A 25-mile drive runs about 35 minutes in ordinary traffic (70 minutes round trip), so the weekly round trip adds roughly 60 hours to your rental property time for the year.

Sixty hours is not 750 by itself. But for the owner who otherwise has logged 700 hours, drive time is the difference between deducting this year’s losses and carrying them forward.

What Does the IRS Have to Say about This?

In its Passive Activity Loss Audit Technique Guide, the IRS states:

Travel Time generally should not be considered in computing the hourly tests for material participation, particularly if other factors indicate the taxpayer is not participating in the activity on a regular, continuous and substantial basis. Legislative history provides that “services must be integral to operations.” It is somewhat difficult to construe that travel constitutes “services” or “participation” as contemplated by Congress or the Regulations. More importantly, travel is not integral to operations in most cases.

In its footnote in support of the above paragraph, the IRS states:

We have no express statutory guidance on travel. While not precedent setting and just a summary opinion, the following case provides guidance on travel time: Thomas E. Truskowsky, T.C. Summary Opinion 2003-130.

Two things are worth knowing about the IRS guidance.

First, it is old, and the IRS says not to rely on it. The Passive Activity Loss Audit Technique Guide is still the February 2005 edition. The IRS has not updated it in more than 20 years, and the guide states on its face that its contents may not be used or cited as sustaining a technical position.

Second, its only support is a case that cannot be cited. Truskowsky is a summary opinion, and by statute a summary opinion may not be treated as precedent for any other case. The IRS says as much in its own footnote.

Trzeciak Case

In Trzeciak, the court did not rule on the deductions. It ruled against granting the Trzeciaks litigation costs and attorney fees. But the court’s discussion of the conversations between the IRS and the taxpayers, their CPA, and their lawyers provides great insight into the strategies you can use with your rental properties.

Miriam Trzeciak owned, managed, and rented 14 single-family homes in and near Columbus, Ohio. She and her husband, Marc, on their joint tax returns claimed rental property losses of $126,376 and $151,884 in the two years that were subject to this IRS audit.

The IRS revenue agent assigned to examine the Trzeciaks’ returns disallowed the losses as passive losses, claiming that Miriam did not qualify as a real estate professional because she could not count her drive time from her home near Dayton to Columbus, where the properties were.

It took Miriam’s CPA, who prepared her returns and assisted with the audit, and then her lawyers almost three years to surface the home-office deduction as the savior. Once they surfaced it to the IRS, the IRS allowed the drive time, and that allowed Miriam to deduct her rental property losses of $126,376 for Year 1 and $151,884 for Year 2.

We wrote about Miriam Trzeciak in Magic Release of Rental Property Tax Deductions with a Home-Office Deduction. In this write-up you can see how Miriam convinced the IRS that the Truskowsky case did not apply to her rentals and why she was allowed her drive time.

Leland Case

In Leland, Clarence McDonald Leland traveled 13 to 16 hours from Mississippi to Texas and back several times each year to perform necessary work on his 1,276-acre farm in Turkey, Texas.

The court noted that the IRS did not object to the inclusion of the travel time in determining Clarence’s participation in the farm. And the court went on to say: “The facts of this case establish that petitioner’s [Clarence’s] travel time was integral to the operation of the farming activity rather than incidental.”

We wrote about the Leland case in more detail in Do Not Make This Mistake When Your Second Business Loses Money.

Leyh Case

The Leyh case involved Richard Leyh and Ellen O’Neill. Ellen owned 12 rental properties in Austin, Texas, about 26 to 30 miles from her home at a ranch in Dipping Springs, Texas.

Ellen and Richard deducted a $69,531 loss from their rental operations. The IRS said no because Ellen failed the 750-hour test to establish her as a real estate professional.

The sole question that the court had to address was whether Ellen could include her drive time from her home to the rentals as rental property time. Interestingly, she failed to include her travel time in her well-kept log of time and had to reconstruct that time for the court.

The court ruled that her reconstruction of the travel time to the properties was adequate and allowed Ellen and Richard to deduct her $69,531 in rental losses on their joint tax return.

Sezonov Case

The most recent word on this point comes with a warning attached.

In Sezonov, an Ohio couple who ran an HVAC business also owned two Florida rental properties. They counted their travel time from Ohio to Florida in their hours.

The court did not throw out the travel time as a category. It did not need to. Even counting the travel, the hours fell far short of 750. The logs were not contemporaneous. The couple reconstructed the hours from rental agreements and emails, and the logs did not make clear which spouse did which work.

The husband had a second problem. He could not show that he spent more time on the rentals than in the HVAC business, which is a separate requirement that a joint return does not let you satisfy by combining spouses’ hours.

The couple also had not made the election to treat all their rental interests as a single activity, which would have made material participation easier to prove.

The lesson. Drive time helps only if you can prove it. Log it as you go; note the time spent, which spouse drove, and the business purpose of each trip. Leyh shows that a reconstruction can work. Sezonov shows what happens when the reconstructed log is weak.

Key point. Don’t count on reconstruction.

Clearing Section 469 Is Not the Finish Line

One more thing to know for 2026: Qualifying as a real estate professional and materially participating gets your rental losses past the passive loss rules and makes them deductible now. But a second limit can still defer them.

The excess business loss rules cap the net business loss you may use against your non-business income, such as  wages, interest, and dividends. For 2026, the threshold is $256,000, or $512,000 on a joint return. Losses above the cap are not lost; they carry forward as a net operating loss.

Two things changed this year, and both cut against you. The One Big Beautiful Bill Act made this limit permanent, repealing the sunset that had been scheduled for the end of 2028. It also reset the inflation base, which pushed the thresholds down instead of up. A married couple who could use $626,000 of business losses in 2025 can use only $512,000 in 2026.

None of this reduces the value of your drive time. It means the drive time gets you through the first gate, and you should plan for the second one.

A Bonus for Passing the Test

Real estate professional status can also keep your rental income out of the 3.8 percent net investment income tax. A safe harbor treats your rental income as derived in the ordinary course of a trade or business, and therefore as outside the tax, if you qualify as a real estate professional and participate in the rental activity for more than 500 hours during the year.

Here again, drive time can be what gets you over the line.

Takeaways

Take the steps necessary to make your rental property drive time count as material participation time. The first step is to keep an accurate log of the time that you spend on your rentals (yes, we know this is a pain—but suffer a little and just do it).

The travel time can contribute significantly to your time needed to pass the real estate professional test so that you can deduct your rental property losses in the current year.

If you can claim the home office as your principal place of business, you will add to the drive time between that office and your real estate rentals. The home-office deduction gives you two cash benefits:

1. 1.  No commuting mileage, and thus more vehicle deductions.

   2.  Deductions for the home office, which means deducting monies you would spend anyway.

You need to prove your time spent. For more on this, see Audit-Proof Your Time Spent on Rental Properties.

Three more points for 2026:

1. 1.  Log it as you go. Sezonov is a reminder that reconstructed logs invite trouble. Record the date, the destination, the miles, the time, the purpose, and which spouse drove.

   2.  Consider the grouping election. Treating all your rental interests as a single activity can make material participation far easier to prove than testing property by property.

   3.  Watch the excess business loss cap. For 2026, the business loss cap is $256,000 ($512,000 joint), and it is now permanent.