All Forum Posts by: Nicole Bernshaw

One good strategy is to take pictures (have the date show at the bottom) before tenants move in and have them sign a document that this is the way the premise looks. Staple pictures and doc. When they leave, take pictures again and compare.

I have heard of horror stories where asking for forgiveness rather than permission in this permit arena causes undoing and redoing the work (with a permit, this time) with great expense in time and $ if the city inspector decides that this or that is not up to code. Keep in mind that I have no personal experience in this domain, and I treat electrical and plumbing with great respect. In this situation, my reaction would be to use one of my contingency clauses to get out of the contract. There are other deals out there.

I think it boils down to why the IRS would treat real estate investors differently from other (read storefront) business.

Real estate investing is not a storefront business. Let's think outside of the box for a moment. There is a lot of work involved in acquiring a property. It is the equivalent of raising fund to open a business, purchasing inventory, etc, incurred with a storefront business. The latter may have incurred a lot of expenses and may not make $ in the first year of operation and yet they are in business. From that standpoint, why would the work of a real estate investor in looking and purchasing his/her 1st property not be considered as "being in business"?

Jake H, how does one determine when s/he in is business? As far as I know, a sole proprietorship does not have an official date of business start. Anyone who make more than $400 net profit at the end of the year is taxed on it even though this might be their only income.

With this in mind, can Michael N say "I am a business owner" (as a sole proprietor) prior to starting his trip to Kansas and start deducting all his business-related expenses from this moment on?

Thanks for your insight.

I belong to a group that provides education by instructors who are professionals in their field of teaching. Say, the instructor on legal issues is a lawyer. The instructor on self-directed IRA is an attorney who caters to clients who want to use their retirement accounts to invest in RE, and so on. All are RE investors. So I started with a pool of advisors who know exactly what my needs are as an RE investor.

Some ways to find this CPA are: become a member of real estate group and/or attend their meetings, and "go through the yellow pages"  and ask this simple question to the CPA: do you invest in real estate. If s/he does not, go to the next one. If your CPA is not an RE investor, s/he will not serve you well.

To me, what is most important is that both the attorney and the CPA are real estate investors. If they are not, they do not understand my needs and cannot serve me well. I have heard plenty of horror stories that justify this stand.

Today, attorneys and CPAs can do business from a remote distance, thanks to the communication technology that we currently enjoy.

1. Any expense associate with business is tax deductible. Everything you mentioned is tax deductible, education being the big question mark at this point.

2. Doing business as a sole proprietor is being in business. Therefore, your expenses associated with the trade of real estate are deductible. On the other hand, do not confuse investing a certain sum with expense. The sum that you are investing will either grow (in which case you will incur a gain and be taxed on the gain) or decrease (in which case you will incur a loss and get a tax deduction on that loss). The original sum of investment is only the starting point for tax calculations.

3. The tax code is sometimes subject to interpretation, which may explain the divergence of advice we are currently receiving on the subject of education.

Jim, I am copying the response that Brandon Hall, CPA, sent me when I asked a similar question a couple of weeks ago:

"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."

This is not what I have been told by another CPA. I am currently looking for the IRS code that will clarify this for me. I too want to have my education to be tax-deductible. Unlike you, though, I went ahead and got the education before doing a deal.