ALERT! Real Estate Seminars

Hi June..

Stumbled into your site. Great info, but could not locate a question similar to the one I have. I had spent a fortune last year (2006) on real-estate training. I heard from those gurus the line that this is "tax-deductible check with your accountant."

I hear different approaches to deducting those expenses.

As a background, I work a w-2 job in the computer industry. I am developing myself into a real-estate consultant and investor to be done on a part time basis. My wife is also joining me and is preparing to get her real-estate agent license.

I have started an LLC this year. It is Nevada-based. I will be adding my wife to the LLC soon. I have one rental property in Alabama bought in 2007 and am a resident of California.

Back to the deduction of all those expenses -- the approaches that have been suggested are:

A. Use all those education (including travel etc) expenses and add it as a basis for acquiring the rental property and therefore use it as part of the depreciation calculation.

B. The other suggestion is to "loan" the said amount to the LLC I have, since I will be serving the LLC with all that expertise acquired through the education.

C. The other one I found was to take $5K in the 1st year as business start-up expenses and keep the rest for subsequent years.

What are your thoughts and suggestions?

Thanks - Ravi


Hello Ravi,

I am so glad that you stumbled onto my site. I hope it keeps you from some serious stumbles in the future!

Were those "different approaches to deducting ...expenses" that you list presented to you by the butcher, the baker, and the candlestick maker? Certainly not by your tax professional -- right?

You cannot get sound advice unless you

A. Seek out competent professionals.

B. Present your background fully.

C. Ask well thought-out questions.

I would not advise on which real estate to buy because I don't have the expertise. And I don't expect accurate tax advice from realtors or guys selling real estate seminars. My readers should not spend money on such seminars unless they check out the credentials and expertise of the presenters before taking the courses. Note I said, BEFORE.

Based on the info as you present it, it appears that all the advice you got is wrong.

You say you are an LLC but you didn't say which kind of tax entity. Check out my posts about LLCs linked here? If you are a sole proprietorship LLC you cannot loan money to yourself.

You say that you are developing yourself into a real-estate consultant and investor. There are different tax treatments depending on your business relationship to real estate, such as, are you a ...
... Real estate investor
... Rental property owner
... Rental property owner as a real estate professional
... Rental property owner providing services.

Read this post Real Estate Sales & Self-employment Tax to understand the differences.

You said you are "developing" a business, not that you are a business. And so, contrary to what the seminar presenters told you, you cannot deduct as a business expense any education costs that prepare you for a new profession. However, there are various educational tax credits available for all taxpayers.

Nor are the expenses considered start-up costs. I suggest you read More about START-UP COSTS: The expense of checking out a new business .

To any of you considering a business in real estate -- or any other indie venture -- I suggest you start by learning the basics about indie taxes in my book, Self-employed Tax Solutions. It's your first step toward developing an indie business mindset.