Real Estate Investment Boot Camp

Question

I am a full-time real estate investor. In May, I paid about $15,000 for a one-week boot camp.

I know that the law does not allow deductions for investment seminars. Does that mean I may not deduct my tuition and travel to the boot camp?

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Answer

Your deductions for the boot camp hinge on the answer to this question: Are your real estate activities a business or an investment?

• If your real estate is a business, you may deduct all the costs of the boot camp, including travel to and from.
• If your real estate is simply an investment, the costs of the boot camp are not deductible.
• Whether your real estate is an investment or a business is a question of fact.

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Indicators That You Are an Investor

Looking at some past decisions, real estate activities that did not rise to the level of a business included the

following:

• Rental of real estate under a net lease. The court noted that the net lease did not rise to the level of a business because simply collecting rent is not a business.
• Rental of real estate owned partly by a New Jersey person, but physically located in Tennessee and managed by the Tennessee owner. The New Jersey person did not have any hands-on contact with the properties; therefore, the court ruled that he was not in the real estate business.

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Indicators That You Are in Business

Real estate activities that have risen to the level of a business include the following:

• The rental of a single piece of real property for the production of income.4
• A taxpayer’s personal efforts to manage six rental units, including seeking new tenants, supplying furnishings, and cleaning and otherwise preparing the units for new tenants. The court found that the activities were sufficiently systematic and continuous to place him in the business of real estate rental.
• A taxpayer’s activities regarding several parcels of land, such as managing the parcels through an agent; paying the mortgages, taxes, and expenses personally; and purchasing and selling the parcels as conditions dictated.

Your answer lies in your facts: if you have a hands-on relationship with your real estate activities, odds are that those activities comprise a business for tax purposes.

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Takeaways

To deduct a real estate investment seminar or boot camp, you need your real estate activity to rise to the level of a business.

Your involvement generally determines how the tax rules will treat your real estate activities.

For instance, a hands-on relationship with the real estate activities—including managing properties personally, seeking tenants, and deciding when to buy or sell properties—is an indicator of a real estate business.

In contrast, simply collecting rent from net leases or owning properties managed by others could indicate a real estate investment.

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