All Forum Posts by: Jason Watson

There are 3 safe harbors available to you-

De Minimis Safe Harbor Election

Safe Harbor Election for Small Taxpayers (sounds a bit condescending)

Safe Harbor for Routine Maintenance

Check these out...

Frankly given the amount, and what you are doing (low materiality to the plumbing system unit of property), I would expense it. Keep track of each little invoice, however. You might also qualify for the de minimis one that you mention since it is line item amounts 2,500 or less.

I don't see this as strict adaptation, and nor would it be betterment or restoration.

I agree some some posts here... yeah, you cannot just skip deducting expenses since that does break some fundamental rules. Depreciation, mileage, home office, meals, 401k (assuming earned income a real estate biz) are all things to consider when wanting income higher so you can have more access to capital.

Most decent lenders will give you credit for depreciation, however. To be "lendable" as you say is more about cash flow than actual taxable income. Same with business valuations.

Quote from @Scott Mac:

The way I look at it, "The Tax Man" is a (silent) partner in everything you do.

The same way as the bank is your partner in many things you do.

Both have a lot of power over you and dictate how you must pay them

This--->>>> https://www.youtube.com/watch?v=gMdcE8jdz70

 Hmmm... Yes and no. The IRS is not my client. While I remind people that the tax police exist, I am not the tax police. Yes, we must defend our profession. More importantly, I am fellow taxpaying citizen.

Having said that, we live in a world of gray waters... a reasonable tax position is all I demand of my clients and my team. Win lose or draw... just be reasonable.

Not sure about the context here... a W-2 and 6 rentals might seem steep... but were there a bunch of hair on your rentals? A dozen 1031 exchanges that needed to be traced out? Keep in mind that once a tax pro prepares a tax return, they largely inherent and own the historical data warts and all.

How many states? 94 fixed assets to setup including a lawnmower at $275?

Did you have a bunch of crud outside of the rentals? 14 brokerage accounts? Nine 1099-Rs?

At first blush it does seem like a $1,600 to $1,800 tax return... but you add 1031s, states and bunch of other tax docs... $3,000 might not be bad.

I will piggyback. Most of us tax pro's are business owners. My wife and I grew our practice from our basement and we now have 68 employees. I 100% approach everything from a business owner perspective because I (and several other tax pro's) started a business with headaches, cash problems, employees, revenue searches, tough decisions, etc.

Then again, I know what you were saying Scott... and I didn't mean to take things too literally. But I am a business owner first, and a CPA second.

Quote from @Michael Plaks:

Quote from @Jason Watson:

Nonetheless, there is a piece that might be missing from the post. Education does not need to be connected to your work per se, but rather improve your current work skills (or be required as part of your job with CEs for attorneys, accountants, etc.).

I don't think it was missing. What you're talking about is part of my #3. Basically, all RE education improves an investor's current skill and falls under Sec 162 (your other comment  about Sec 162 eligibility notwithstanding). Rarely an issue, save for the abusive scenarios I mentioned.

The fun part is education before you make any deals. Does it qualify for Sec 195 or not? I don't think there's a definitive answer.

Yeah, I agree. Does Rev Ruling 99-23 help a bit?

Expenditures incurred in the course of a general search for, or investigation of, an active trade or business in order to determine whether to enter a new business and which new business to enter (other than costs incurred to acquire capital assets that are used in the search or investigation) qualify as investigatory costs that are eligible for amortization as start-up expenditures under § 195. However, expenditures incurred in the attempt to acquire a specific business do not qualify as start-up expenditures because they are acquisition costs under § 263. The nature of the cost must be analyzed based on all the facts and circumstances of the transaction to determine whether it is an investigatory cost incurred to facilitate the whether and which decisions, or an acquisition cost incurred to facilitate consummation of an acquisition.

So, the question becomes is it "investigation?" Are we using a real estate investment seminar as a tool to decide whether to go into the rental property business or not? Things that make you go hmmm...

Hmmm... while I agree that for purposes of Section 199A there is a series of safe harbor tests, but I don't see a specific tax court case or statute that specifically changes, improves, overturns, etc. the decision in Grier. Sure, it's 1954... there must have been a zillion cases and whatnot since then.

And with Section 199A, you can use either the safe harbor or facts/circumstances to support 162 (frankly, the safe harbors are anything but safe, I'd take my chances on simply arguing continuous, regular, profit motive, etc.).

Perhaps DM me. Aren't you still cleaning up after getting hammered by rain? Hope things are OK.

Now the question becomes, does your rental or real estate activities rise to Section 162?

The definition of a “trade or business” comes from common law, where the concepts have been developed and refined by the courts over time. The Supreme Court has interpreted “trade or business” for purposes of Section 162 to mean an activity conducted with “continuity and regularity” and with the primary purpose of earning income or making a profit.

We would argue that rentals and general real estate investments fall under this auspice otherwise you wouldn’t do it. Sure, we all want that short-term tax loss to offset other income, but ultimately you want to make money.

However, in Grier v. United States, 120 F.Supp. 395 (D.Conn. 1954) the taxpayer lost. How?

Edgar Grier inherited a house from his mother that she had rented out for many years to the same tenant. This same tenant continued to occupy the property until Grier sold it 14 years later. Over the years, little management work was required, but Grier did take care of such details as replacing the furnace. The IRS and court found that the house was an investment, not a business for Grier. The court noted that this was the only rental property Grier had ever owned and concluded that his landlord activities were too minimal to rise to the level of a business.

Has Grier been updated?

Yeah, the whole real estate investor seminar stuff is always funny to me. I doubt any of my to investor clients took a class. They were a) smart and b) knew money and c) poked around on the world wide webs a bit. I'm sure I've offended someone...

Nonetheless, there is a piece that might be missing from the post. Education does not need to be connected to your work per se, but rather improve your current work skills (or be required as part of your job with CEs for attorneys, accountants, etc.).

Here is the verbiage direct from the IRS. Before I click the ol' paste button, there are as many tax court cases allowing and disallowing MBA deductions for business owners. Even with identical facts. All depends on the court you get, and if they are having a bad day or not.

I do like the Section 195 and Section 162 intersection that you illustrate. Ok, here we go-

You can deduct the costs of qualifying work-related education as

business expenses. This is education that meets at least one of the
following two tests:

• The education is required by your employer or the law to keep your
  present salary, status or job. The required education must serve a bona
  fide business purpose of your employer.
• The education maintains or improves skills needed in your present work.

However, even if the education meets one or both of the above tests, it is not qualifying work-related education if it:

• Is needed to meet the minimum educational requirements of your present trade or business or
• Is part of a program of study that will qualify you for a new trade or business.

You can deduct the costs of qualifying work-related education as a
business expense even if the education could lead to a degree.

Quote from @Michael Baum:

Hey @Account Closed, it isn't a loophole, it is just the tax law.

I would get with a CPA and get the full rundown for your exact situation. Worth every penny.

Ah, but calling it a loophole makes it sound daring and naughty. They should call more things loopholes... like the 401k loophole or the charitable donation loophole.

Make us accountants sound like 007.