IRS Deduction for Real Estate Investing Expenses

6 Replies

What are the IRS rules on deducting expenses for Real Estate investing efforts?

I have several current rentals which are reported on Schedule E.

However for "Driving for dollar" expenses, trips to check out DST investment properties, trips to check on unimproved properties, etc. These do not seem to be appropriate under a Schedule E and I have found reporting expenses on Schedule C to be a bad idea. So what about these?

@Amanda Han , @Brandon Hall , any thoughts?

Obviously a CPA is your best bet. But in my opinion I write off whatever can be justified. I have an LLC and also a some prop account, each with business credit cards. If it costs me money (it’s a real expense) then I write it off.

I wish we could edit on the app. That was supposed to say SOLE prop account.

@Shawn Clark ,thanks for the note.  That is the way I look at it too. It is definitely an expense but if these expenses turn into money making investments, the income-expense gets reported on a specific Schedule E  and I am told that if the expense is pre advertising date for a rental, they they are to be capitalized into the purchased rental or other property only to be recovered when depreciated or sold.   See @Brandon Hall blog on BARRR vs BRRR. But what about the expenses of the dry hole look-sees? Where can such an expense be reported?

Cheers,

Buddy

Originally posted by @Buddy Holmes :

@Shawn Clark ,thanks for the note.  That is the way I look at it too. It is definitely an expense but if these expenses turn into money making investments, the income-expense gets reported on a specific Schedule E  and I am told that if the expense is pre advertising date for a rental, they they are to be capitalized into the purchased rental or other property only to be recovered when depreciated or sold.   See @Brandon Hall blog on BARRR vs BRRR. But what about the expenses of the dry hole look-sees? Where can such an expense be reported?

Cheers,

Buddy

 If you have a company, then any expense incurred in the running of the company is a legitimate expense. Just like education, for instance. Even clothing, if it's for the business. I think you are using too fine of a line myself.

You don't have to have a legal business name, licence or LLC to have a business. Any expense associated with real estate investing is a business expense driving for dollars included.

https://www.irs.gov/pub/irs-pdf/i1040se.pdf

see line 6 for rules on deducting travel expenses.

@Thomas Robb, That sounds correct but where do you claim those expenses on your tax return?  Schedule C seems like the correct place, but...

Using Schedule C seems to be a flag for the IRS auditors (I am in one now). Seems they expect to see some income at some point against those expenses. So if you are doing flips then you have income and all is cool. If your are doing the BRRR or BARRR per @Brandon Hall , then  those get caught up in capitol expense and come off the Basis of a property reported on Schedule E.   My EA for my Audit says unless expenses for looking at an investment turn into an actual investment, the IRS does not consider them an expense.   I don't think that sounds reasonable but still looking at where/how they can be expenses on a tax return.

cheers,

Buddy 

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