Tax-Deductible Expenses for General REI Activities

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Tax-Deductible Expenses for General REI Activities

Ryan H.
Investor · Portland, OR · Member since 2014 · 100 posts · 25 votes

Hello, 

I own one rental property and report income and expenses related to that property on schedule E.  However, I also have other expenses in connection with general real estate investment activities (not connected with the property I own but instead with my search for additional rentals) - marketing and education, especially.  Can I deduct these as business expenses for 2020?  I did register a business in connection with these activities, but not until later in the year.  

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Dalyn Hazell
Rental Property Investor · Springfield, MO · Member since 2020 · 120 posts · 96 votes
5y

@Ryan H. I get what you’re saying, you don’t want to claim expenses for a property you don’t own yet. So, until you close on the property, you could put those expenses on a Schedule C, and just have the business description be “other real estate activities” or something like that.

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  • Dalyn Hazell
    Rental Property Investor · Springfield, MO · Member since 2020 · 120 posts · 96 votes
    5y

    @Ryan H. Is the money you’re spending in education and marketing spent with a purpose to acquire more rentals? If so, you could include it on schedule E as well.

    However, if you’re also going to wholesale, flip, etc., it’s harder to make the case for including it on Schedule E, which is used to report passive activities. It just depends on what you’re trying to do.

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  • Ryan H.
    OP
    Investor · Portland, OR · Member since 2014 · 100 posts · 25 votes
    5y

    Hi @Dalyn Hazell - all of those expenses are for the purposes of acquiring a second rental.  I'm confused about your suggestion to include this on Schedule E, since the Schedule E is tied to particular property.  Wouldn't it go on Schedule C?  I am not looking to wholesale or flip.

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  • Dalyn Hazell
    Rental Property Investor · Springfield, MO · Member since 2020 · 120 posts · 96 votes
    5y

    @Ryan H. I get what you’re saying, you don’t want to claim expenses for a property you don’t own yet. So, until you close on the property, you could put those expenses on a Schedule C, and just have the business description be “other real estate activities” or something like that.

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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    5y
    Originally posted by @Ryan H.:

    Hi @Dalyn Hazell - all of those expenses are for the purposes of acquiring a second rental.  I'm confused about your suggestion to include this on Schedule E, since the Schedule E is tied to particular property.  Wouldn't it go on Schedule C?  I am not looking to wholesale or flip. 


    True, but practically you can include some of those expenses, such as education, on the current properties as you can make a case that you are learning to better run your property. Some of the expenses directly related to acquiring new property could be capitalized if you have identified a property. If not identified, you can deduct the cost with the existing property or wait to deduct it when you get a property. 

    There is another complicated way to technically do it right, but we have to practical. Most of these expenses are not even material to worry about.  

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  • Ryan H.
    OP
    Investor · Portland, OR · Member since 2014 · 100 posts · 25 votes
    5y

    Thanks, @Ashish Acharya.  Can you comment on the alternative of putting these expenses on a Schedule C?  The expenses are not tied to my current property and I have not identified a new property.

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  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    5y

    Rental real estate trade or business overhead expenses are NOT reportable on Schedule C.  One of the top mistakes I see on DIY returns of prospects.

    Rental real estate trade or business overhead expenses should be allocated or apportioned to rentals using any reasonable method and reported on Schedule E.

    That is assuming these expenses are deductible and not capitalized.

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  • Ryan H.
    OP
    Investor · Portland, OR · Member since 2014 · 100 posts · 25 votes
    5y

    Thank you, @Eamonn McElroy.

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