1. they claim near 130k net lost for both year, which red flagged IRS.
Totally agree. But I believe the loss was true if she could claim herself in the rental business. Which I believe she was not. See my argument later.
2. they travel 7 hour round trip to visit their rentals, per IRS, the travel time, can't count in the 750 hour test.
Yes or No. The IRS tried to establish that the business home was at the location where the properties were (Columbus). SO the travel from home to business location is "commute".
3. use actual deductions, don't just say common overheads...
This is not really relevant. Although more detailed accounting ledge book is appreciated.
4. don't claim home office deduction, which everyone know is a huge red flag.
The issue here is not the home office being a red flag. The IRS had already yielded and ready to give up after the landlord hired a second law firm who established that the residency in Dayton is the business office and traveling to rental properties is between business locations, which is "work", not commuting. However, the court reminded the IRS that it was not IRS' responsibility to find out whether the landlord having used her home as a business office unless the landlord stated so at the very beginning of the suit. According to the law, the later establishment of home office was thrown out by the court.
My 2 cents.
1. If you want to claim travel hours into your professional status, set up a home office. Nothing should be worried if you follow the IRS regulation in setting up such a place.
2. the landlord is indeed was not a professional. The court, the IRS and the landlord all knew that. She is not even a landlord, I will argue. She traveled to her properties once a month to care the rental business. How could she? She is more likely a investor wishing to flip when the price going up. It is noted that she acquired those properties mainly in 2005. Some of her properties probably occupied. But majority of them were vacant, as I believe. This is how the substantial loss coming from. However, it is much difficult to establish her business is not landlording. So IRS started the case by arguing the commuting issues.
3. She probably sustained a substantial loss in her investment due to the housing bubble. She was trying to recoup her loss by filing rental property loss. Which is unwise.
4. Be detailed in your accouting book. be professional in your landlording business. Do not mix personal and business accounts. Claiming home office as necessary (I do not). If you have your number right, if you know IRS code well, nothing to be afraid of.
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