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Travel costs when purchasing a rental property but property not purchased.

Moderator: Third time trying to post this question.
How do you handle travel and related expenses or a taxpayer with multiple Schedule E rentals which are incurred looking for an additional property to purchase, but no purchase is made?
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Reply to
Taxed and Spent
I believe the answer is that these expenses are not a deductible expense until such time there is a property found and made available to rent. At that time the expenses would be capitalized against that property (added to cost basis). As far as the IRS is concerned, you are just looking to buy another home until you can show otherwise.
As I mentioned in another thread this month, I remembered that rental property being a passive activity does not allow for expensing start-up costs. That rule requires an active trade or business.
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Reply to
Alan
I think I saw that after I posted my question. In this case, the real estate activity rises to the level of an active trade or business.
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Taxed and Spent
Okay. I just hope you understand when real estate activity rises to the level of a trade or business. So... you can read about that subject in the following article from the Tax Advisor.
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Reply to
Alan
Yes, I do. I did my own extensive research on this in the past - I wish I had that article back then, although I had others.
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Taxed and Spent
So, if this is an activity of a Real Estate Professional, which rises to the level of a trade or business, looking for new property to acquire is not a start up activity. So, such costs can be expensed? And if all the properties are Schedule E properties, where would such expenses go on the tax return?
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Reply to
Taxed and Spent
1. Looking for new property in a new market does generate start-up costs in the same manner that the owner of a bakery looking to open another store in a neighboring city generates start-up costs. 2. When you are renting property, you do not have a deductible expense until the property is available for rent. 3. You would need to keep track of the expenses you incur prior to making the property you buy available for rent. Then you can write off them off under Section 195 or use the 180 month rule. 4. If you never buy the property, then you just incurred a nondeductible personal expense.
See the replies in the 3/13 thread on this subject.
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Alan

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