Rental expense - seminar

[Bill Tubbs]

Client had owned a rental property for about a year - gross rents for that duplex were $20,000. Then went to a "Carlton Sheets" seminar costing $5000 -- he says he went there to learn more about how to make money on rental properties. He continued to rent the 1st property, and 4 months later he bought another duplex.

My question is what to do with the $5000 seminar expense... it wasn't specifically related to the purchase of the 2nd property (so I don't see capitalizing it as a purchase expense of that property). Is it just a current-year expense of the 1st property?

Bill

[jainen]

attending an investment seminar

>>to learn more about how to make money on rental properties<<

No deduction is allowed for the costs of attending an investment seminar.

[Black Bart]

Just looked it up and

everything says jainen's right; that is, investment seminars aren't deductible. Doesn't make sense though, because the articles say you can take off investment counseling and what's the difference in getting that in some guy's office or getting "counseled" at a seminar?

$5K eh? Carlton musta gone up. I too once decided to "make big money fast" and sent off for his VHS tapes -- cost about $150 at the time and I can't remember whether ol' Carl said it was tax-deductible or not. If he did say it, then undoubtedly jainen is wrong, 'cause there's no way Carlton would mouth an untruth.

I knew it was flim-flam when I sent off for it, but I was curious as to how the scheme works. Basically, what Carl suggests you do is twist the seller's arm sufficiently to (believe it or not) get him to co-sign your (the buyer's) note, because (so Carl's reasoning goes), after all, the seller is the one that wants to get shut of that white elephant. Since the good ole buyer is just trying to help the guy out, why shouldn't he expect a little consideration and assistance from that seller? To do less would be downright ungrateful, I guess you'd have to say.

Ideally, Carl (he really means it when he says NO MONEY DOWN) advises getting the seller to finance the house (for you-the buyer) entirely on his own while you merely submit a side-note (or maybe even an IOU) to him- although he did say that that one doesn't fly too often (I mean lotsa folks are dumb, but they're not completely crazy.

I've been meaning to dig those dust-gathering tapes outta the closet sometime, just in case I ever have enough time on my hands to get rich quick again.

[Bill Tubbs]

Sch A vs. Sch E

I'll readily agree that investment seminars cannot be deducted on Sch A -- according to Pub 17, pg 192: "You cannot deduct any expenses for attending a convention, seminar, or similar meeting for investment purposes" -- but this section of Pub 17 does not address Sch C or Sch E. But, client was actively participating in one rental property at the time and was figuring out how to finance a 2nd one -- so, why can't the investment seminar be deducted on Sch E?

An anology -- utilities normally cannot be deducted, but if you're incurring utilities on a rental property then that is a deductible expense on Sch E. Or interest on a washing machine -- if your personal property then not deductible, but if the washer was rental then the interest on the washer would be a Sch E expense. So, I would think that attending a seminar because of his rental activities would then be deductible somewhere -- perhaps capitalizing it into the cost of purchasing the 2nd rental.

Bill

[jerome]

I agree with you, Bill.

Page 4-2 in the tax book says attendance at an investment convention or seminar is nondeductible, unless connected with a trade or business. It cites code section 274(h)(7).

[Kram BergGold]

trade or business

Rental property is not a trade or business. If it was, you could claim section 179.

[jainen]

it is a business

>>Rental property is not a trade or business. If it was, you could claim section 179<<

Not if it was a residence, which is what we usually mean by rental property. Section 179 excludes lodging, even if it is a business.

[Bill Tubbs]

the code

Thanks for the code reference. I did a little digging and here's what I came up with:

Sec. 274 is "Disallowance of certain entertainment, etc., expenses"

274(h) is "Attendance at conventions, etc."
274(h)(1) states, in part: "In general. In the case of any individual who attends a convention, seminar, or similar meeting which is held outside the North American area,[...]"

So, I don't see 274(h) applying to a seminar that was held in the US. But, even if 274(h)(7) does apply, it states:
"Seminars, etc. for section 212 purposes -- No deduction shall be allowed under section 212 for expenses allocable to a convention, seminar, or similar meeting."

Sec 212 is part of PART VII - ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS (i.e. Sch A). So, even if 274(h)(7) does apply to US seminars, the deduction is only disallowed for Sch A -- it doesn't specifically disallow it for Sch C or Sch E.



So, I don't see it specifically being excluded, which then means as long as it is an ordinary and necessary expense, then I should be able to deduct the seminar on Sch E.

Any other arguments?

Bill

PS. Thanks to all who have commented thus far.

[jainen]

any other arguments

>>as long as it is an ordinary and necessary expense, then I should be able to deduct the seminar on Sch E. Any other arguments?<<

You don't need any other arguments--you are already stating the core problem. An investment seminar is NOT an ordinary and necessary expense of operating a rental. In a general way it relates to acquiring the property, so I guess if it was specific enough you could capitalize the cost, but that's really stretching. A seminar is not a consultation.

And don't try pretending that it is really a seminar about how to be a good landlord. That would irrevocably damage your credibility.

[Joe Btfsplk]

Seminar on investing

A seminar on OPERATING real estate might qualify, but a seminar on investing in real estate is a whole 'nother story.

Learning how to be a better investor in real estate would not relate to existing rental property.

When I deducted the cost of attending graduate school, the IRS asked me why I was enrolled in an MBA course. I gave him an answer directly out of Publication 17, "To improve my skills in my present postition." He then dropped the subject. I think it would have been another story if I'd said, "To learn how to be a better investor "(although one course was on investing).

[Gene V]

So, I don't see it specifically being excluded, which then means as long as it is an ordinary and necessary expense, then I should be able to deduct the seminar on Sch E.

I wouldn't think the seminar would be deductible. Even if it was, $5,000.00 doesn't seems like ordinary and necessary expense to manage a rental property.

[OREGON BEAR]

Rental Expenses

A Rental operation is considered a Trade or Business. It is considered a Passive activitiy so it has the loss limitations applied to it right from the beggening. I am sure that each of you spend some of your profits on going to Seminars each year to not only meet your continuing education requirments, but too also learn new things. I often spend $4,000 to $7,000 a year for education and never think twice about deducting it.

[jainen]

you are a tax preparer

>>I often spend $4,000 to $7,000 a year for education<<

If you are a tax preparer, education about the tax code and professional ethics is deductible. Education about buying and selling tax practices is not.

[Kram BergGold]

trade or business

Please see TTB page 9-15 top of right column. Investment property which includes rental property is non qualifying for Section 179. However trade or business proeprty does qualify (bottom of leeft column). Based on this, I contend that rental property is not trade or business. This is why Section 179 can't be claimed for a refrigerator in a rental property.

[jerome]

Rental property is an in-between category. It is not a trade or business for Section 179, but it is a trade or business for Office in Home (see the tax book, page 5-14 court case).

As to the Schedule A verses Schedule E argument for Section 212, the code does not refer to IRS Forms. Section 274(h)(7) simply says no deduction shall be allowed under section 212 for expenses allocable to a convention, seminar, or similar meeting.

Section 212 simply says in the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income, for the management, conservation, or maintenance of property held for the production of income, or in connection with the determination, collection , or refund of any tax.

That could mean a rental activity, depending upon facts and circumstances. In the Office in Home case cited in the tax book, page 5-14, not all rental activities would qualify for an office in home deduction. It was the specific circumstances of that particular taxpayer that allowed the rental to qualify as a trade or business under the office in home rules.

The same could be true for this rental. It just depends. I would explain the gray area rules to the client and let the client decide on how far to push the issue.