Ne RE investor

[Mimi Takele]

New to RE investing , can I claim taxes fees on RE mentor/coaching, including Real-Estate software system package as RE start up Business cost? 

[Sean O'Keefe]

@Mimi Takele The answer is - maybe

The main question is when did you complete the start-up phase and became actively engaged in business?

This is the case that is related to your questions. The court decided that the $21k education expense was not deductible as business expenses but would be considered, at best, the start-up cost. Start-up costs are also deductible but are amortized over 15 years with a limit of 5k.

Start-up costs have strict rules and your case might not be the same as this one.

Case Summary:

Timeline line of events

• Started investigating property: Feb
• Put first contract (canceled): May
• Bought first property: December 30th

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).

Court case for reference:

• 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.