Car expense deductions with multiple work locations

Question

I'm trying to figure out the rules on deduction of car expenses as a business expense. I'm looking at IRS publication 463.

Suppose that I work from home, but do not qualify for a business use of home deduction. As I understand it, this means I cannot deduct trips from home to another work location (e.g., going to a client's home or office to do work there). The publication seems to say this, by referring to the publication about "business use of home", but I'm not 100% sure I'm right in equating the eligibility for deduction for business use of home vs just having your home be your "principal place of business". In other words, it seems that if my home is my main work location in the ordinary-language sense (i.e., I have no other office), but there is no part of it exclusively designated for business use, then not only can I not deduct business use of the home, I also cannot deduct travel from there to a workplace. Is this correct, or is it ever possible to deduct travel to/from a home workplace that does not qualify for its own home-office deduction?

Specifically, what I'm wondering is whether it is possible for a home to qualify as a "principal place of business" for purposes of deducting car expenses but not for the home office deduction. The main sticking point is the "exclusively" part of the "regularly and exclusively" criterion. It would seem that having no part of your home that is exclusively used for business not only disqualifies you from the home office deduction but also from the deductions for travel from your home, and I'm wondering if that is the correct interpretation.

Supposing I'm right about the above, there is another related issue. The publication says that, if you work in multiple locations, you can deduct trips from one work location to another, but "if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second." What is not clear to me is what exactly is deductible if there are significant time gaps (within a single day) between trips to different clients.

Suppose I go from my home to client A. I finish work there at noon. I have an appointment with client B, but not until 3pm. As I understand it, if I drive to some unrelated location and hang out for a while, then go to client B, I can deduct what it would have cost me to go to directly from A to B.

However, what if after finishing with client A, I drive home, then later drive to client B? Does driving home in the middle mean that the trips home and to client B are now nondeductible (because they are from my nonqualifying home office), so I can't even deduct what it would have cost me to go directly from A to B? The publication says:

Example 3: You have no regular office, and you do not have an office in your home. In this case, the location of your first business contact inside the metropolitan area is considered your office. Transportation expenses between your home and this first contact are nondeductible commuting expenses. Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. While you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another.

This seems to assume that the only trips you make are from home to first client, between clients, and from last client to home, possibly with some stops at other locations for "personal reasons". I can't figure out from this what the rules are if you make multiple trips between home and different clients in the same day. Also, it's not clear whether stopoffs between clients would really be "personal reasons", since the appointment times are often set by the client, so it's not as if the delay between A and B was just because I felt like it; there was never the option of going directly from A to B.

If going home does make the expense nondeductible, this would seem to create a perverse incentive for people to do their darnedest to go anywhere but home during gaps in their schedule. If I had a gap like that described above, I could save on my taxes by going to the park or a hamburger stand instead of going home between A and B. I realize that strange loopholes like this do exist in the tax code, but I'm wondering if this is really one of them.

Answer 1

Suppose that I work from home, but do not qualify for a business use of home deduction. As I understand it, this means I cannot deduct trips from home to another work location (e.g., going to a client's home or office to do work there).

I do not think this is true. You cannot deduct trips to your main business location, i.e.: you cannot deduct trips to your office or client's location if this is your main client and you routinely work on-site. However, if you only visit your clients on occasion for specific events while doing your routine work at home - you can definitely deduct those trips. The deduction of the home usage itself has nothing to do with it.

However, there's a different reason they refer to pub 587. Your home must qualify as principal place of business (even if it doesn't qualify for deduction). The qualifications of "principal place of business" are described in pub 587.

"if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost you to go directly from the first location to the second." What is not clear to me is what exactly is deductible if there are significant time gaps (within a single day) between trips to different clients.

You got it right. What this quote means is that if you have client A and client B, and you drive from A to B - you can only deduct the travel between A and B, nothing else. I.e.: if you have 2 hours to kill and you take a trip to the mall - you cannot deduct the mileage attributable to that trip. You only deduct the actual distance between A and B as it would be had you driven from A to B directly.

The example you cite re first client being considered as the place of business is for the case where your home doesn't qualify as principal place of business. In this case you start counting miles from your first client, and only for direct trips from client to client. If you only have 1 client in that day, tough luck, nothing to deduct.

Also, it's not clear whether stopoffs between clients would really be "personal reasons", since the appointment times are often set by the client, so it's not as if the delay between A and B was just because I felt like it; there was never the option of going directly from A to B.

That's what is called "facts and circumstances". You can argue that you had enough time between meetings to go back to your home office to continue working. The IRS agent auditing you (and you're likely to get audited) will consider that. Maybe will accept it. Maybe not.

If I had a gap like that described above, I could save on my taxes by going to the park or a hamburger stand instead of going home between A and B

But then you wouldn't be at home, so why would it be "principal place of business" if you're not there? Boom, lost deduction for the trip to the first client.

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I suggest you talk to a licensed tax adviser (EA/CPA licensed in your State). You're dealing with deductions that are considered "red flags" for the IRS. I.e.: many people believe that these deductions (business use of your home/car) trigger audits.

To substantiate business use of your car you need to keep very good track of your travels (literally travel log, they sell them at Staples), and make sure to distinguish between personal travel and business travel, keep proofs that the meetings took place (although keeping a log is a requirement, it can be backdated/faked, so if audited - the IRS will want to see more than your own documentation). A good tax adviser will educate you on all these rules, and also clarify the complexities you were asking about here.

I'm not a tax adviser, so don't rely on this answer when you're preparing your tax return or responding to the IRS audit.

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In your edit you ask this:

Specifically, what I'm wondering is whether it is possible for a home to qualify as a "principal place of business" for purposes of deducting car expenses but not for the home office deduction.

The answer is yes. Deductibility is determined by exclusivity of use, among other things. But the fact that you manage your business from your kitchen doesn't make your kitchen any less of a principal place of business. It is non-deductible because you also cook your dinners there, but it is still, nonetheless, your principal place of business.

The Pub 587 which I linked to has these qualifications:

Your home office will qualify as your principal place of business if you meet the following requirements.

You use it exclusively and regularly for administrative or management activities of your trade or business.

You have no other fixed location where you conduct substantial administrative or management activities of your trade or business.

As you see, exclusivity of the usage of your home area is not a requirement here. The "exclusively and regularly" in the quote refers to your business not using any other location, and managing it from home regularly.

I.e.: if you manage your business a day in a year - that's not enough for it to be considered principal. If you manage your business from your office and your home - you cannot consider home as principal.