Realtor pd for exam in 2011, take exam in 2012

[AZ-Tax]

In 2011 client was not yet a Realtor but paid for Realtor course to set for exam in 2012 in fact this week is the exam. After a breif research, I am not so sure her Realtor course is a bus deduciton on her Sch C but if so, can it be deducted on Sch C for her in 2012 TY?

http://upstartagent.com/2009/02/tax-deductions-for-real-estate-agents/

[Uncle Sam]

Realtor Course

Why should it be deductible at all - regardless of which year?
Any expenses incurred to meet the minimum requirements of an occupation
are not considered legitimate business expenses.

Perhaps a Lifetime Learning credit - maybe - but not a business expense.

[AZ-Tax]

This point was brought up in my EA class

Why should it be deductible at all - regardless of which year?
Any expenses incurred to meet the minimum requirements of an occupation
are not considered legitimate business expenses.

Interesting point. This was debated in my EA class and if I recall, all the instructors agreed that since the IRS is mandating the license, it was a business deduction.

[okie1tax]

Exam

The license is required to operate and is therefore deductible. The exam is required by state law to obtain the license and is therefore NOT deductible. Boy, aren't taxes fun?

[dan doshan]

Isn't this similar to taking a bar exam which as I understand would not be a deductible expense.

[Koss]

Expenses

To me, the original post is not clear.

There are potentially four different fees in question here:

- Initial coursework to become a realtor
(Analogy: Courses that lead to a two year degree in accounting, for someone who wants to become a CPA)

- Review course to prepare for the exam
(Analogy: CPA Exam Review Course)

- Fee for the exam itself

- Fee for the real estate salesperson license

The initial coursework usually qualifies for the Lifetime Learning Credit. In some states, it may even qualify for the AOC or Tuition and Fees Deduction. I know all about "preparing you for a new career." But here in Ohio, you cannot take the real estate exam until you have taken four college courses. The courses are offered by community colleges and by some private for-profit schools. Either way, the institution is fully accredited, and if the student is taking enough hours, they can get a Pell Grant and student loans to pay for those courses. The courses are part of a program that leads to a two-year college degree. Some students take only those courses, and then quit. The four courses allow them to take the real estate exam. But while they are taking those courses, they are usually enrolled in a degree program. For me, that overrides any claim that it is preparing you for a new career. It's part of the first four years of undergraduate work at a community college. That qualifies for AOC.

The review course, to help prepare for the exam, might qualify for Lifetime Learning Credit.

The fee to take the exam, and the fee to get the initial license, are not deductible.

License renewal in later years is a fully deductible business expense.

BMK

[AZ-Tax]

Thanks for your replies

It AZ I dont believe you need any college to sit for Realtor exam. Its the Realtor course that was paid for in 2011. The exam(s) will be paid for and taken in 2012.

[FEDUKE404]

Initial license question

Koss - Are you sure the cost of the initial license itself might not be construed as a valid "business expense" ? (I agree with you on the exclusion of training/testing fees et al for a new Realtor.)

My limited understanding of things is that someone (obviously) cannot get a license until they have successfully passed the exams. At that time they are, for all intents a purposes, a Realtor but they still first gotta buy that extra piece of (renewable) paper to hang on the wall before they can legally work.

Just curious....

FE

[Koss]

Initial Licensing

FEDUKE wrote:

Are you sure the cost of the initial license itself might not be construed as a valid "business expense" ?

My initial reaction (pun intended) would have been yes.

But I found this in Chapter 28 of Publication 17:

Professional Accreditation Fees

You cannot deduct professional accreditation fees such as the following.

Accounting certificate fees paid for the initial right to practice accounting.

Bar exam fees and incidental expenses in securing initial admission to the bar.

Medical and dental license fees paid to get initial licensing.

All three examples contain the word initial, which certainly implies that a license renewal fee is a deductible business expense.

The IRS position is pretty clear, but I don't get it. In Ohio, the accountancy board requires a license for an public accounting firm, in addition to licensing individuals. If you establish an accounting firm, the firm needs an initial license. I'm pretty sure that would be an expense for the business entity, although an earlier thread said it would need to be capitalized as a business start-up cost. But even if that's the case, it's still an expense of the business.

But I can begin to see a certain logic to it.

FEDUKE wrote:

My limited understanding of things is that someone (obviously) cannot get a license until they have successfully passed the exams. At that time they are, for all intents and purposes, a Realtor but they still first gotta buy that extra piece of (renewable) paper to hang on the wall before they can legally work.

No--not quite. First of all, Realtor is a registered service mark. You can't use it unless you are member of the National Association of Realtors, which is an industry association. The licensed professional, in Ohio, is referred to as a real estate salesperson.

But I know what you meant. Someone who has passed the exam, but has not yet obtained the license, is not a real estate salesperson. The fact that they can't "legally work" until they have a "paper to hang on the wall" is the whole point.

Let's abstract away from this. Someone who passes the bar, but has not yet obtained a license to practice law, is not an attorney.

No, really. They're not. They have a law degree. That doesn't mean they can practice law.

Someone who has passed the IRS Special Enrollment Exam, but not has yet been admitted to practice by the IRS Office of Professional Responsibility is not an enrolled agent. The person cannot represent taxpayers before the IRS.

And that person might never become an enrolled agent. They might not pass the background check.

Seriously. There are many, many cases of guys who have passed the bar, but can't get licensed to practice law because of something in their past.

Do a google search for Stephen Glass. It's a great story.

The education--a law degree, medical school, four college courses for real estate in Ohio--and the exam are prerequisites for the license. They are necessary but not sufficient.

Until you get the initial license, you can't practice. So you're not engaged in a trade or business until after you get the license.

The renewal is a no-brainer. It's an ordinary and necessary business expense.

But there is no business until after you get the initial license.

Or something like that...



BMK

[TAX4US]

Ok if I can prepare returns now and go take the test for rtp and then go after the EA are my expences for the various classes I take a business expense or what? I am so tired already of returns comming in with all kinds of stuff in them. ESP parents of students.

Anyway can someone chime in on my original question? Many thanks to the board. I really like this place.

[Gary2]

No--not quite. First of all, Realtor is a registered service mark. You can't use it unless you are member of the National Association of Realtors, which is an industry association. The licensed professional, in Ohio, is referred to as a real estate salesperson.

But I know what you meant. Someone who has passed the exam, but has not yet obtained the license, is not a real estate salesperson. The fact that they can't "legally work" until they have a "paper to hang on the wall" is the whole point.

I thought you had beat me to it, but there's more. A quick search for local Realtor board memberships suggests that they have their own exam requirement - though I can't tell whether it's intended to mean the same as the state licensing exam or an exam managed by their organization.

The point being that if there really is a separate exam for becoming a Realtor (tm) , then it should be deductible, assuming one is already a real estate broker. In that sense, it's similar to various sorts of IT certifications - not mandatory to be employed in the field, but often a valuable credential for getting hired.

[JG EA]

FEDUKE wrote:



My initial reaction (pun intended) would have been yes.

But I found this in Chapter 28 of Publication 17:



All three examples contain the word initial, which certainly implies that a license renewal fee is a deductible business expense.

The IRS position is pretty clear, but I don't get it. In Ohio, the accountancy board requires a license for an public accounting firm, in addition to licensing individuals. If you establish an accounting firm, the firm needs an initial license. I'm pretty sure that would be an expense for the business entity, although an earlier thread said it would need to be capitalized as a business start-up cost. But even if that's the case, it's still an expense of the business.

But I can begin to see a certain logic to it.

FEDUKE wrote:



No--not quite. First of all, Realtor is a registered service mark. You can't use it unless you are member of the National Association of Realtors, which is an industry association. The licensed professional, in Ohio, is referred to as a real estate salesperson.

But I know what you meant. Someone who has passed the exam, but has not yet obtained the license, is not a real estate salesperson. The fact that they can't "legally work" until they have a "paper to hang on the wall" is the whole point.

Let's abstract away from this. Someone who passes the bar, but has not yet obtained a license to practice law, is not an attorney.

No, really. They're not. They have a law degree. That doesn't mean they can practice law.

Someone who has passed the IRS Special Enrollment Exam, but not has yet been admitted to practice by the IRS Office of Professional Responsibility is not an enrolled agent. The person cannot represent taxpayers before the IRS.

And that person might never become an enrolled agent. They might not pass the background check.

Seriously. There are many, many cases of guys who have passed the bar, but can't get licensed to practice law because of something in their past.

Do a google search for Stephen Glass. It's a great story.

The education--a law degree, medical school, four college courses for real estate in Ohio--and the exam are prerequisites for the license. They are necessary but not sufficient.

Until you get the initial license, you can't practice. So you're not engaged in a trade or business until after you get the license.

The renewal is a no-brainer. It's an ordinary and necessary business expense.

But there is no business until after you get the initial license.

Or something like that...



BMK

I've been wondering this for a long time: How long does it take you to create a post like this?

[Koss]

Long Posts

I've been wondering this for a long time: How long does it take you to create a post like this?

Not as long as the one about home phone service.

That post took some serious time.

This one... Well, years ago, I had a real estate license in Ohio, so I know the rules. A lot of this was off the cuff. But not all of it. When I started following this thread, I really thought that initial licensing fees would be considered a business expense. But the first four or five responses said they weren't. So I got curious...

The Tax Book is an excellent resource. But in some cases, Minnetonka is no match for Mountain View.

I did a Google search for

bar exam fee tax deductible

No quote marks.

The top hit is Chapter 28 of Publication 17.



BMK