Claim inspection costs for a cancelled contract?

Question

I couldn't find an answer to my question through several searches, so here goes.

Background:  I own a SFR that is rented out.  I do my own property management for this house.  I am currently trying to buy another SFR to rent out.

Situation:  I had a contract with a seller on a SFR.  The inspection showed problems with the roof.  The seller refused to repair the roof.  I elected to cancel the contract.

Question:  Can I claim the costs of the inspection (I paid the inspection cost) as a business expense?

I think the answer is Yes.  But, I haven't found anyone else with a similar experience/situation.  I know you can't give "official" legal/tax advice.  But what's your opinion?  Has anyone else dealt with this?

Thanks in advance!  This is a great place to learn the ropes.

John

Steven Hamilton II · Answer

John Andruszka,

That expense is not allowed on Schedule E.  It is deducted subject to 2% of your AGI on Schedule A.

Tevis Verrett's answer is incorrect. That is only for expenses related to that property.

-Steven the Tax Guy

Tevis Verrett · Answer

Hey John Andruszka yessss buddy!

This is how the Fed Govt looves us investors.

It is 1040 Schedule E, Line 10
Legal and other professional fees

That is where that expense goes.  And man, you better have a receipt to back that deduction up if you are ever audited.

YMMV, Objects are ALWAYS closer than they appear,

Tevis

John A. · Answer

@Kathryn Dunnivant,  I took Steve Hamilton's advice and put it on the Schedule A.  If I run across this situation again, I'll contact a local accountant to be sure.

Wayne Brooks · Answer

Steve Hamilton knows what he’s talking about.

Kathryn Dunnivant · Answer

@John A. did you ever figure out the correct answer for this? I have the same question! Thanks!

John A. · Answer

Steven Hamilton II

Sounds like we agree it is deductible.  Now I need to verify how it's deducted (Schedule A or Schedule E).

Thanks!  I'll look into this more.

John

Tevis Verrett · Answer

Blessings John Andruszka and keep up the good fight!

Tevis

John A. · Answer

Tevis Verrett,

Thanks!  I thought so.  But, since I'm not buying the property, I wanted to be sure.

I do plan on keeping a copy of the contract and the receipts for the inspection so that I'm ready when the auditor comes knocking.

John

Claim inspection costs for a cancelled contract?

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