Janine asks a question that I get a lot from serious real estate investors.

Q: I have invested a lot in RD Education, and start up costs for my new Real Estate/Property Investor business. I think that I heard that I must have a rental property to get beyond "Start up" and be able to qualify for any tax exemptions for my business. -What if I have a Joint Venture Agreement and I am actively making Hard Money Loans, or if I buy and sell at least one investment property? Does either of those things qualify me as a real Property Investor who can have these start up costs as well as expensed incured? Thanks Janine

A: Start up expenses do not begin to be deductible until you start business. The question of when you start your business is the subject of many court cases. In the rental real estate business, the general concensus of the courts is that you have not started your business until you have a piece of rental real estate held out for rent. It doesn't have to be rented, but it must be ready to be rented and it must be marketed to be rented.

Think about a regular retail business. When would you say they had begun business? Not until they open their doors, right? The same is true under the tax laws.

As for hard money lending, you would really have to show a lot of loans to prove that this is a "business" and not simply an investment. For fix and flips, the same is true. Just flipping one property may not put you into the business of flipping properties. The question here will come down to your intent. Is it your intent to flip many properties or just the one?

Unfortunately, the IRS has the advantage of 20/20 hindsight. They can see your intent by looking at what you actually did. So, you might say now that you intent to build a fix and flip business. However, what if you only do the one property? Then the IRS is likely to say you were not in business.

As always, I suggest you sit down with you tax advisor and come up with a complete, long-term tax strategy. You will be far better off using a professional to help you get the most tax savings over the long term.

Warmest regards,

Tom