Discussion:Start up costs - determining
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Discussion Forum Index --> Advanced Tax Questions --> Start up costs - determining
Discussion Forum Index --> Tax Questions --> Start up costs - determining
| 4 July 2009 | |
| Please help me think this through. I have a client that started a new rental real estate business in March 2008. For the rest of the year he had expenses (the majority were for education), but no income. He did not make an offer to purchase a property until 2009. His intention from the beginning was to rent real estate (no investigation time period). I am trying to determine if the expenses are deductible right away (as far as he's concerned he started his business in March 2008) or if they would be considered start up costs because he didn't make an offer on a property until 2009 (I'm thinking the business wasn't "active" until his first offer). I am also concerned because most of the expenses were for education. (I would have loved to have been able to deduct my college education as a business expense a year before I got my first client, but I just can't do that. Are these education expenses treated in a similar manner). Thanks for your help. | |
RoyDaleOne (talk|edits) said: | 4 July 2009 |
| There is an least one court case that agrees with your position relative to the start of the business. There have many discussions on education in this forum. | |
| 4 July 2009 | |
| Concerning the deductability of the eduction costs. These aren't for college courses. They are for boot camps, mentoring programs and at home study courses. There are no qualifications to becoming a landlord. I don't see how the education could qualify him for a new trade or business since there are no qualifications needed. Any comments? | |
| 4 July 2009 | |
Given the holiday, it might be a little slow around here, so while you're waiting for new comments w/r/t your last question, here are some old ones you can review:
(Or, if you've already read those, at least the list might help the next person to come along looking for similar info.) | |
| 4 July 2009 | |
| Believe the 274(h)(7) investment seminar disallowance rule applies here. | |
| 4 July 2009 | |
| Riley - Why wouldn't section 162 be applied?
Trillium, thanks for links. I have gone through most of them, and I must say, I think I am more confused now then when I started. LOL | |
| 4 July 2009 | |
| Where is the trade or business? Making an offer on a single property doesn't really rise to the level of a trade or business. | |
| 4 July 2009 | |
| His intent is to purchase many properties and he currently has offers on more than one property. His intent is definately to make this a business. Would I need to wait several years to prove that it's a business and then amend prior years returns, or can I use his intent and his current activities? | |
| 4 July 2009 | |
| I just found this definition of a trade or business in the Journal of Accountancy: "A trade or business has been defined as “holding one’s self out to others as engaged in the selling of goods or services.” (Deputy v. du Pont, 308 U.S. 488 (1940), Frankfurter, J., concurring). The Small Business/Self- Employed section of the IRS Web site at www.irs.gov defines it as “an activity carried on for a livelihood or in good faith to make a profit.” Revenue Ruling 58-112 further characterizes a trade or business activity as one that is regular, frequent and continuous." | |
| 4 July 2009 | |
| I think they are startup costs and must be amortized because no property was purchased in 2008. An offer to buy a property is not necessarily the start of a business as determined in the case below. In the case below, it is when a property is purchased that the court determined the taxpayer's business "began". So, My question is, did the taxpayer purchase a property in 2009 or merely make an offer? | |
| 4 July 2009 | |
| Trillium - I just finished reading the court case Woody V IRS from the link you provided. It was right on point. The expenses are start up costs because his business had not begun yet because he had not purchased and rented a property. It also affirmed what Riley2 said that about the educational costs not being deductible. Even though my argument is that there are no qualifications to be a landlord, so how can the education qualify you to be a landlord, the case clearly stated that, "expenditure...for workshops and training--was an educational expense incurred to prepare for a new career, i.e., real estate investor and renter, rather than to maintain or improve skills in an ongoing business or career. It was therefore not deductible under section 162." | |
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