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Updated over 7 years ago on . Most recent reply

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James Palassis
  • Easley, SC
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Deducting Expenses Before First Purchase

James Palassis
  • Easley, SC
Posted

I am planning on purchasing my first rental property within the next 6-8 months. Right now I am leaning on purchasing in my name without going the LLC route at this time. My question is... since I will incur expenses (local REI club dues, Bigger Pockets Pro, entertainment expenses while building a team, fuel while prospecting desirable localities for my target property type, maybe a separate cell number and PO Box for direct mail responses etc...) this year, but will most likely not purchase a property until 2017, am I able to deduct those expenses against my w2 earned income this year? My goal is not to do anything shady, but these are expenses directly related to my real estate endeavors, so just wondering how to handle it.

Any insight would be greatly appreciated. And I do understand that any advice offered is not official tax advice and I will also seek the direction of a local RE focused CPA in my area. Anyone know one of those near Greenville, SC? (Hopefully that pinged a key word alert for a local CPA).

Thank you!

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Linda Weygant
  • Investor and CPA
  • Arvada, CO
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Linda Weygant
  • Investor and CPA
  • Arvada, CO
Replied

Expenses incurred in starting a new business are not deductible until you are actually "in business".  Since you say you have a W-2 job, it is unlikely that you would be able to convince the IRS that you are actually in the real estate business until you do your first deal.

At that point, you'll accumulate all of your start up expenses.  You can deduct the first $5000 in the first year of business and then amortize the rest over five years.  

So you'll eventually get to take those expenses, but probably not yet.

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