Costs of DD and marketing before your first deal

3 Replies

Hello BP community, I am about to buy a bunch of lists for mass off marking leads. This will cost a little bit as well as the cost of postal services etc. I also use Parley2.0 that cost 300$. Additionally, I drive around neighborhoods. And at one point I will go to a place I have under contract so there will be some travel expenses. I also will attend some real estate conventions etc. Is there a way to deduct all these expenses from my personal income while you don’t have any rental yet ? Can I make a marketing LLC running negative and pass through it into my W2 ? Any tax strategies for this kind of situation ? Basically all the cost that happens before you actually have a business in real estate investing. Thanks all. To our successes, Charles.

@Charles Heyligen

The short answer is no. It sounds like you're in a preparation stage, and your business will not really start until 2018. Your costs are what are generally considered to be start-up costs, not deductible until the business starts.

If you were starting a wholesaling or flipping business, you could accelerate the start date by launching your marketing next week. However, you mentioned that you're looking for rentals, and that pretty much closes the door on doing it clean.

Then, you could consider doing it in a risky way: the way you suggested. It would be essentially creating a fake marketing company that would only serve your own future business. Two problems here:

- it is a stretch at best, and could be construed as something worse

- businesses with zero income and substantial expenses are the favorite lunch of the IRS

So, I would not recommend it, generally speaking. That said, your personal tax accountant could find it acceptable, after discussing it with you in details, in your specific situation.

@Charles Heyligen

Start-up costs ARE deductible - but after the business starts. If it's flipping/wholesaling - could result in a deduction right after the business starts. If it's rental properties - then added to the cost of the property, which becomes deductible in the future, via depreciation.

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