Tax Returns for Real Estate Investing (Schedule C vs. Schedule E)

[Adrian M]

I have been investing for several years. Initially, I met with a Tax Consultant to ask how to categorize Misc Expenses. Expenses that cannot be tied to a particular property. He advised that I either not report the expenses or randomly relate them to a property. So they would then be reported on the Schedule E. I am not content with this answer. I have legitimate expenses that do not relate to a particular property (examples: education and researching geographical areas and opportunities). I am considering the use of a Business (Schedule C) in addition to the Real Estate Profit and Loss (Schedule E). However, the Business will never have income. All of the income will be generated from the Real Estate (Schedule E).

I am very interested to get some opinions on how to structure these Misc Expenses. Please let me know what approach you have taken, and how well that approach has worked for you. And please enlighten me on any Tax Guidelines that I might be overlooking.

Thank you for your time!!,
Adrian

[James Blakeley]

This may be the wrong place but it needs to be on the forum someplace.

If you are trying to claim deductions for education expenses prior to actually placing offers on properties. The IRS may want to argue that your education expenses were pre-career change and thus not allowable. Make sure you keep a journal of everything you do in business. A journal showing you were looking for property, made offers, even if none were accepted would be more evidence in court (hopefully never needed) than hearsay or testimony.

Ask a real estate accountant for advise before you spend your money. Just good business.

http://www.groco.com/readingroom/tax_woody_realestate_business.aspx This is not an endorsement, but the orginal article that prompted my post reply.