How to write off real estate education course purchased on taxes?

[Luke Siecinski]

Hello!

In 2022 I purchased a real estate course and am wondering if it's possible to write it off on my tax return. I have just one investment property that I rented out Feb-Dec of 2022. Other than that I am a full time W2 employee. If it is possible to write off, which tax form would it be on? If you need any more info or context from me let me know!

Thank you,

Luke Siecinski

[Jeff Nash]

Hi Luke, an education expense is a deductible business expense only if you get the education while your working in a business with a profit motive.  So the question is, does your rental activity qualify as a trade or business or just a passive investment?  It is possible for only one rental to be considered a trade or business (sometimes what is considered a trade or business is relevant for different reasons for tax purposes), but obviously the more rentals and more involved you are the better your position.  Another consideration would be to look at it as a start-up expense if it's regarded as a trade or business (can deduct up to $5,000 immediately for eligible start-up costs).

As a side note for education expense, you may deduct education that maintains or improves your current job skills or that is required by law or your employer - as long as the education does not qualify you for a new business.  This topic comes up with more expensive fix and flip courses where you have to determine the timing of the deduction and when the course was taken when folks are transitioning from their W-2 jobs.  

I am not sure how much this course was or when you purchased it, but I would evaluate your fact pattern in light of the above and self-assess or discuss with a tax professional as needed.     
   

[Ashish Acharya]

Quote from @Luke Siecinski:

Hello!

In 2022 I purchased a real estate course and am wondering if it's possible to write it off on my tax return. I have just one investment property that I rented out Feb-Dec of 2022. Other than that I am a full time W2 employee. If it is possible to write off, which tax form would it be on? If you need any more info or context from me let me know!

Thank you,

Luke Siecinski

 May be this is helpful to you:

This is the case that is related to you.

Code Sec(s):	162; 195
Docket:	Dkt No. 30077-07.
Date Issued:	04/30/2009.
Judge:	Opinion by Gustafson, J.
Tax Year(s):	Year 2004.
Disposition:	Decision for Commissioner.

Started investigating property: Feb

Put first contract (canceled): May

Bought first property: December 30th

Court decided that his 21k education expense was not deductible as business expenses but would be considered, at best, the start up cost. Start up cost are also deductible but are amortized over 15 years with the limit of 5k.

Start up cost have strict rules too. And your case might not be exactly as this case.

Here is the summary if you are interested.

In this case, the main question is when did the investor completed his start-up phase and became actively engaged in his business.

Whether a taxpayer is engaged in a trade or business is determined using a facts and circumstances test under which courts have focused on the following three factors that indicate the existence of a trade or business:

(1) whether the taxpayer undertook the activity intending to earn a profit;

(2) whether the taxpayer is regularly and actively involved in the activity; and (3) whether the taxpayer's activity has actually commenced.

“On the basis investor testimony, we may assume that he undertook this activity to make a profit and that he regularly and actively engaged in it. However, it is the third factor—whether investor business had actually commenced—that is determinative here.”

“In investor’s business outline, dated May 10, 2004, he indicated that he was starting Value Property Investments “for the purpose of buying, remodeling and renting property.” Therefore, until investor began to buy, remodel, or rent—i.e., to perform the activities for which Value Property Investments was organized—he was not carrying on a trade or business as contemplated by section 162(Business deduction).

Nonetheless, in order to resolve the matter before us, we do not need to decide whether Mr. Woody's business started at the time he purchased the 1st property or at the time he held it out for rent, because, in any event, the expenses in question here all occurred before the purchase date, i.e., before December 30

If the earliest possible date investor was actively carrying on a trade or business was December 30, 2004, then any expenses incurred in that year but incurred “before the day on which the active trade or business” began, all the expenses incurred from January 1 through December 29, 2004--would be, by definition, start-up expenses whose deductibility, and possible amortization, is expressly dealt with by section 195(Start up amortization).

[Luke Siecinski]

Quote from @Jeff Nash:

Hi Luke, an education expense is a deductible business expense only if you get the education while your working in a business with a profit motive.  So the question is, does your rental activity qualify as a trade or business or just a passive investment?  It is possible for only one rental to be considered a trade or business (sometimes what is considered a trade or business is relevant for different reasons for tax purposes), but obviously the more rentals and more involved you are the better your position.  Another consideration would be to look at it as a start-up expense if it's regarded as a trade or business (can deduct up to $5,000 immediately for eligible start-up costs).

As a side note for education expense, you may deduct education that maintains or improves your current job skills or that is required by law or your employer - as long as the education does not qualify you for a new business.  This topic comes up with more expensive fix and flip courses where you have to determine the timing of the deduction and when the course was taken when folks are transitioning from their W-2 jobs.  

I am not sure how much this course was or when you purchased it, but I would evaluate your fact pattern in light of the above and self-assess or discuss with a tax professional as needed.  
   

 Hi @Jeff Nash - thanks for your reply.

Given all the info you provided I believe I'm able to deduct the education, but correct me if I'm wrong. The course was about $7,500 and was purchased in October 2022 (I started renting my property in February 2022). I purchased the education while I was actively pursuing a profit from my rental. I do not see on which line on Schedule E to deduct this education expense. I also do not see on Schedule E where to deduct as Startup Expense if I opt to do it that way. Where would these expenses be filled out?

Thanks!

[Jeff Nash]

The tax form line item description are not always thorough so you usually have to use some discretion and decide whether to include them under “Other Expenses” with an appropriate description.