Engineer · Fawn Grove, PA · Member since 2015 · 93 posts · 10 votes
Group
My wife and I are slowly proceeding towards our goals of being a buy and hold investors. We didn't make any purchases during 2016. How do our treat our incurred expenses during 2016?
Real Estate Investor · Stevens Point, WI · Member since 2016 · 15 posts · 18 votes
9y
If you have not generated any income, nor purchased any properties, the only expenses you could deduct would be those that you incurred in the process of setting up your business (as an LLC, S-Corp, etc.), just be careful, the IRS expects you to make a profit in 3 out of any 5 years and they are quick to label those that do not meet this requirement as a "hobby" and then none of your losses are deductible. What kind of expenses do you have that you think would be deductible?
Look at your expenses. Are they actually worth deducting? If you didn't buy a property then your expenses may only be $100. Then again, maybe you went hog-wild, got your license, had an attorney draw up an LLC, etc. and end up at $10k of expenses. Check with your CPA to see what your difference in taxes would be, then decide if it is worth taking.
Fairfield CT · Member since 2017 · 63 posts · 77 votes
9y
I am a fellow investor and real estate CPA who specializes in tax strategy for investors. The answer to your question is more complicated than just considering the hobby loss rules. If you want to share specifics with me, I will be happy to point you in the right direction. Connect with me here or look me up on the internet. My questions would be: What are the nature of the expenses? Were they incurred in pursuit of purchasing the first property? Were they incurred inside or outside of an LLC? If so, how many members? It also depends on your personal income situations. Tax strategies must be tailored to each person's unique situation and what they actually did. There is no cookie cutter approach.