Tax Deductions
Wholesaler · Baton Rouge, LA · Member since 2008 · 471 posts · 98 votes
I've recently had my accountant do my 2008 income taxes and I was surprised that he informed me that I could not take deductions for my real estate investment training that I purchased in 2008. A big one was the Rich Dad REI Coaching Program @ $6,285 and several smaller courses amounting to several hundreds of dollars. I have a full time job and am working on building my REI business albeit I have not done any deals or made any money yet, I believed the training material and other expenses directly related to my part time REI business were legitimate tax deductions. I know people can't respond or "give tax advice" officially but unofficially am I wrong about this and my accountant is right?
Once you have an actively running business, you can deduct education expenses such as these. If they are incurred prior to your start date, you deduct or amortize them as startup expenses. You can deduct up to $5000 in startup expenses (with exceptions if startup expenses exceed $50K) in the year you start your business and amortize the remainder. Since you have not done any deals, your business would not have started yet and you will have to wait on the deduction. However, if for tax purposes you are considered an investor once you do start, you cannot deduct educational expenses at all according to my understanding. Investors (as defined by the IRS) are not considered actively running a business and do not get the same deductions as business owners (as defined by the IRS). Education deductions are just one. Again, you and I may consider ourselves "investors", but we do not want the IRS to classify us as investors. I am no accountant, but I do have a rental business. "Every Landlord's Tax Deduction Guide" gave me an excellent start and understanding of taxes related to real estate. There are other books out there. You may want to read up, even if you have someone do your taxes. It can be enlightening and help you determine the tax consequences of what you do.
Hope this helps!
Robert-
I always thought you could, but I think you need to be a real estate professional.
Check out the website below, item 4. Professional fee's call out continuing education.
http://www.rentlaw.com/tax/realestatepro.htm
Did you file that you are or are not a real estate professional?
Wouldn't it be considered "investment seminars"?
Educational seminars are absolutely deductible as an expense. . . BUT that is once you are in the business.
My understanding is that educational expenses to qualify you for a NEW business are not deductible. My guess is that is the issue your accountant is bringing up. However it may be deductible as a start up expense that can be amortized over a number of years - talk to your CPA.
Once you have an actively running business, you can deduct education expenses such as these. If they are incurred prior to your start date, you deduct or amortize them as startup expenses. You can deduct up to $5000 in startup expenses (with exceptions if startup expenses exceed $50K) in the year you start your business and amortize the remainder. Since you have not done any deals, your business would not have started yet and you will have to wait on the deduction. However, if for tax purposes you are considered an investor once you do start, you cannot deduct educational expenses at all according to my understanding. Investors (as defined by the IRS) are not considered actively running a business and do not get the same deductions as business owners (as defined by the IRS). Education deductions are just one. Again, you and I may consider ourselves "investors", but we do not want the IRS to classify us as investors. I am no accountant, but I do have a rental business. "Every Landlord's Tax Deduction Guide" gave me an excellent start and understanding of taxes related to real estate. There are other books out there. You may want to read up, even if you have someone do your taxes. It can be enlightening and help you determine the tax consequences of what you do.
Hope this helps!
that doesn't make any sense. It sounds like a business expense to me. Is he making you itemize your deductions on your personal return and is claiming that the amount of money you spend isn't enough to itemize?
After a long day of looking at properties, my business partner (who happens to be my wife) and I decided to have a business meeting over dinner.
I consider the expense for this dinner to be a legitimate business deduction.
Am I wrong?
As a Realtor or a landlord, you would be able to write-off because your educating yourself for your business. Business expense is for business purpose only.
Food expense depends on what type of business your in. If your in the rental property business, NO. If your a Realtor, Yes, because it's reasonable to take your clients out to discuss about properties. Even if your working on your rental property, you can't write off the food expense. In the rental property business, you deal with tenants, you don't take your tenants out to dinner.
Second on the "Every Landlord's Tax Deduction Guide."
You should do your own taxes along with having your CPA do it. This way you understand where all the expenses goes.
The person that should be really answering this question is your CPA, since I'm not one.
Meals and Entertainment Expenses:
You really have to be careful here and make sure it's a business related expense, you don't want to get audited because you wanted to write-off a $20 dinner at Denny's.
Taking your employees out is not a business expense. Even taking your friend out because he helped paint your house is not a business expense. A company holiday party would be a business expense. Everything has to be within reason.
i'm new to all this, so just to get a better understanding of my own situation... if i formed an llc back in 2008 and have one rental, then would the seminars and educational expenses i have incurred in the last year (2009) be eligible to be written off in my business taxes? based on what i am reading here, it seems that in my case, seminar costs could indeed be written off because i am indeed "in the business" - correct?
The difference the way I understand it, is whether you are determined to be in the business or in "the start up process" That is a question for a KNOWLEDGABLE real estate CPA. I would personally take the deduction if I was tinarei. If you're audited, fight it, if not audited, you win by default. Rich
There are several issues addressed here:
Real estate investing is not necessarily a business activity. A CPA must determine if the activity qualifies as a business.
If you have expenses before actually starting a business these expenses can be capitalized and amortized over time. The expenses need to meet the definition of ordinary and reasonable though.
There are different classifications real estate investors in the tax code as well and it can play a major part in what is deductible and when it is deductible.
Education expenses for the purpose of learning a new profession would be difficult to qualify as legitimate business expenses.
Hobby loss rules can apply to real estate businesses as well as any other business and need to be considered.
The real estate professional status can be quite beneficial if an investor qualifies.
A CPA needs to consider a number of things when determining the deductiblty of an expense. It is not always clear cut.
So Charles, how do you determine if it is a business or not? I only have one single family rental home. Although I am actively involved in all of the upkeep,finance, etc of the rental I do not have a business license. I was of the understanding that I do not need a license for only one property but understand that I will be limited on the deductible items (can't deduct home office, etc). This was told to me by my county license dept. Now they are telling me that if I receive income from it, that I need a business license. That doesn't make sense to me. There seems to be such a fine line between being an active investor and a business owner. Even some CPA's are not giving the same info. How do you know how the IRS will define it? Very confused.
Charles,
I have used the Real Estate Professional status for about 3 yrs. The main benefit is so as "not" to limit or cap my deductions.
Are there any recent changes in the Tax Code regarding Real Estate Professional status?
Not asking necessarily for specifics, but whether that Section of the Code has changed in the last couple of years.