BiggerPockets

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?

Wouldn't it be considered "investment seminars"?

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!

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?

Originally posted by Robert Burns

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?

The issue is you haven't done any deals and probably have no way of demonstrating you are actually in business.

It is possible all or some of those costs can be capitalized and applied to future profits assuming those profits are generated in reasonable proximity to the expenses you incurred.

In other words, if you incurred those in 2008 and actually do some deals in 2009 AS A RESULT of incurring those expenses you might be able to get at least a partial deduction. For this to work, impeccable documentation is an absolute must. It will trigger an audit.

This is the darker side of the seminar industry. Yes, learning fees are a deductible business expense if and only if you are actually in business.

Originally posted by E Grigg

@ Eric Wang - What if you take your Management company to dinner or your rehab crew?

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.

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.

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.