Is education cost a tax deductible business expense?

Question

I just joined BiggerPockets. In my previous life, I was a biotech researcher. Then, I worked for a tax company for 10 seasons until I retired from the workforce. I do not have all the answers to tax questions, though, which brings me to the following situation.

Like so many Americans, I found myself at retirement time with insufficient retirement funds to take care of my old days. So I "spent the bucks" (>$10K) to educate myself in real estate investing. I have learned how to invest my retirement funds - through a 3rd party custodian - into real estate deals, the proceeds of which are going directly into my retirement account. I have done exactly that in the past year.

The IRS is specific in terms of business deductions: you have to show that you are in business to make money - so that the IRS can tax you on the profits. Normally, both income and expenses are reported on Schedule C of the 1040. I did make money but it is sheltered in my retirement account and is not taxable. So, here is my question: is my education expense tax deductible given that my investment income is non-taxable and reported on form 990-T?

Thank you in advance for your input.

Nicole Bernshaw · Answer

Brandon, thank you for your input. I did not think about the timeline of the events. Despite the complexities of the IRS code, would you be able to refer me to the paragraphs that address this issue? Many thanks.

Brandon Hall · Answer

When did the education occur? If before you did a deal, the education is non-deductible. If after you did a deal, we may have an argument to deduct it.

Education that qualifies you for a new trade or business is non-deductible. Education that allows you to expand upon current skill sets and bring more revenue/profits to a business can potentially be deductible.

It generally does not matter how you hold your real estate (inside a retirement plan or not).

Is education cost a tax deductible business expense?

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