General Real Estate Deductions

Every active investment or business will have general expenses for management, home office, travel, etc. The question here is where there really is a real estate deduction.

In order to take a deduction, the expense must be ‘ordinary’ and ‘necessary’ for the business. One of the accounting & tax challenges for the real estate investor will be whether the business gets a benefit from the deduction. For example, you can’t write off strictly personal expenses against your real estate income. And regardless of what someone might tell you, it’s a bad idea to move your entire home inside a corporation as an attempt to get a full write off. You lose way more then you possibly gain, and you’ll still have some tax for the rental value of living in the home.

Question #1: Is the general real estate expense really a real estate deduction, under the true definition of the term?

The other big question is whether you’ve actually started the business. Some real estate investors invest a lot of money and time in education before they jump into investing. In that case, the cost of that education is considered a starting up expense. That means it is not deductible until the business actually starts.

Question #2: When did you start your business?

It’s pretty easy to see when a business starts. It starts when you open your doors and/or make a sale. But it can take months to close a real estate deal, when does your business start? If you can demonstrate you have a real business going, even though you don’t yet have a closed property, you’ve got the deduction. That means you need to be prepared to show you’ve made a lot of offers and actually have something likely to close in the works. Of course, if you’ve closed on a property, then you’ve started.

Thank you for choosing UsTaxAid Services, we would be glad to assist you with all of your tax needs and have you become our client. We can have a Client Representative get in contact with you or you can call Richard at 888-592-4769.

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