Discussion:Tax Court Speaks - Real Estate Courses

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Discussion Forum Index --> Tax Questions --> Tax Court Speaks - Real Estate Courses

Death&Taxes (talk|edits) said:

19 May 2009
We've had several discussions on people taking real estate investor courses; now the Tax Court weighs in. Note that in Mr. Woody's case, they cite his activity as being a new profession.


Kevinh5 (talk|edits) said:

19 May 2009
quite interesting.

1) what if he didn't intend to flip properties and didn't put it on Sch C but Sch E? (same result)

2) what if he did elect to treat it as ยง195 start up expenses (education seminar still wouldn't qualify because it prepared him for a new trade or business)

3) what if he already had another rental house or was involved in Sch C flipping BEFORE he took the seminar?????

I think the 3rd question is the most interesting.

RoyDaleOne (talk|edits) said:

19 May 2009
The ruling seems to be in opposition to Blitzer v. United States 1982-9 (Ct. Cl. 1982) as to when a trade or business starts. In addition, the court mixes and matchs various terms, such as, rental, investment, and trade or business.

Yt1300inHtown (talk|edits) said:

6 July 2009
I would be interested in exploring #3 on Kevin's comment above. Looking at a return right now, client has flipped properties for a few years, and now in this year has over $4,000 in "Building Wealth System" expense.

I was leaning towards leaving it in there since taxpayer has been doing this full time for the prior 3 years.

Southparkcpa (talk|edits) said:

6 July 2009
Great POST .

Curious as to how others would have handled this but in my practice, I would NOT have prepared that return. Even (as Kevins point 3 asks) if he had 1 or 2 rental properties, it doesn't pass the smell test for 162.

In my view, IRC 162 is pretty broad and 21K in expenses is NOT in my view justified even if you own a property or 2.

I am of the feeling this just about borders on preparer negligence.

Smokeytax (talk|edits) said:

7 July 2009
I was just about to deduct that exact same course last month when the Woody case came out. We were thinking that the course could be looked at as being investigation or professional development and deductible as a start up cost. Then we backed away as a result of the Woody case, mainly due to the possibility of preparer negligence.

But, I still think the denial of deductions for education is geared at college courses. Allowing those as a deduction would be so huge as to possibly prevent the federal government from balancing the budget the way they like to do.

I think we might argue that trade conferences, not held anywhere near any educational institution, and which doesn't result in obtaining a license or qualifications for entering a new business could be looked at differently.

The course, by the way seemed like a bit of a ripoff - the $20K+ price was for one day! I think we've discussed this before.

Yt1300inHtown (talk|edits) said:

7 July 2009
In my circustance, the courses were not nearly as expensive and the client has been actively engaged in house-flipping as his sole means of income for the past three years. I am still inclined to take it.


Smokeytax (talk|edits) said:

7 July 2009
In your case, I think the deduction is valid since it looks like the course was related to a business the client was already in, rather than preparing him to enter a new business.

Yt1300inHtown (talk|edits) said:

7 July 2009
Thanks Smokey.

TTMM (talk|edits) said:

7 July 2009
Yt1300inHtown I would leave it as an educational expense since he is in the business. But I would make sure that I could directly link his house-flipping business to what he learned at the "Building Wealth System".

I had a client (note the "had") that spent $21K on an educational/mentor/software program to do rentals, house-flipping etc. I capitalized it as start-up costs. They weren't happy with me.

Southparkcpa (talk|edits) said:

8 July 2009
If you operate passive rentals under 469 "schedule E" , I am not certain that a deduction on a "naked" schedule C for education courses is proper, perhaps it is. My thought is that some research would need be done BUT I am inclined to believe these are misc deductions under education on schedule A subject to AMT.

For those of you who would deduct it, wuld you put it on a schedule C???? Even though it supports a passive activity?

I suppose it has some merit but I am not sure without research. Perhaps I will do some and report back.

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