Tax Deductions

10 Replies

Hello All,

I started (in Oct.) with real estate investing and I haven't done any deals yet and I haven't registered a business entity, I've been getting doing training, have start up business costs, gone to seminars and spent money on real estate investing related items. My question is, can I still deduct my expenses on my tax return even though I don't legally and technically have a business registered?

Thanks

Jen

I believe that you could. You should keep tabs of your receipts if you can and I would generally recommend having a different account set up so you can refer to that account. From a tax perspective I believe that there is an "education" tax deduction that could be made. However, I'm not a CPA/Account so you might want to ask them to get a better idea. 

I also don't think that you need to be "registered" since you're just a sole prop and working under yourself as your name vs. a business name (DBA). When you do deals the payments would go out to you directly, so you are your own business already. Hope this makes sense.

@Jen Buchanan

 Be careful what expenses you choose, some expenses depend on what type of investing you're doing    For instance miles driven can be  expensed for rentals but not for  Capital gains   Made on flips     Things like staying at hotels and food are limited to investors that are considered dealers    Read up on what can be  expensed  for your particular type of investments and tax strategy    

you can write off alot of stuff for a business without having an actual legal business. I wrote off some stuff for when i used to buy sell on ebay and CL. Just make sure you are deducting stuff you can prove. People think just cause you pay cash you don't need receipts but lets see how that holds up during an audit...

Honestly if its enough money to worry about it may be easier to get a CPA and see if they can get you enough more back to pay for the CPA then some..

Just my .02

@Darlena Jones it's not that black and white, sorry.

@Jeff Cox is on the right track.

@Jen Buchanan the question that needs to be answered is: were you in business in 2015? 

Once you are in business, you can deduct those costs. Otherwise they are capitalized as start-up costs and deducted in the year in which you are considered to be in business.

Being in business depends on the facts and circumstances related to your business. A flipper or wholesaler will be "in business" when they have a property under contract. A landlord will be in business when their first property is advertised for rent.

So you don't need to earn money to be in business, but you need to be involved in your respective activity.

Additionally, the education expenses are most likely not deductible as they would be viewed as qualifying you for a new trade or business. Had you done  deal and then taken a seminar or a course, it would be a different story as you would have already been engaged in that trade or business and simply expanding upon your skills. Education that qualifies you for a new trade or business is not deductible.

Hope this helps.

Originally posted by @Brandon Hall :

@Darlena Jones it's not that black and white, sorry.

@Jeff Cox is on the right track.

@Jen Buchanan the question that needs to be answered is: were you in business in 2015? 

Once you are in business, you can deduct those costs. Otherwise they are capitalized as start-up costs and deducted in the year in which you are considered to be in business.

Being in business depends on the facts and circumstances related to your business. A flipper or wholesaler will be "in business" when they have a property under contract. A landlord will be in business when their first property is advertised for rent.

So you don't need to earn money to be in business, but you need to be involved in your respective activity.

Additionally, the education expenses are most likely not deductible as they would be viewed as qualifying you for a new trade or business. Had you done  deal and then taken a seminar or a course, it would be a different story as you would have already been engaged in that trade or business and simply expanding upon your skills. Education that qualifies you for a new trade or business is not deductible.

Hope this helps.

 Couldn't have said it better myself.  

If your scenario is as simple as you outlined, save your receipts so that you can verify/justify the future Business Start Up costs.  If there is more to your scenario, definitely get with a quality CPA to discuss your situation and see if there is an exception for you.

If i traveled  to another state last year to meet with a few companies and view their properties then purchased one of those properties i saw this year can i deduct my travel, food, car rental expenses when i file my 2015 taxes?

Here is a good video that touches on whether you can deduct such "startup" costs... See the first 6 minutes. There is also a recommended book within the link.

https://www.biggerpockets.com/renewsblog/real-estate-tax-strategy-interview/