Question

Deductions-Schedule E?

Forum|Forum|6 years ago
February 21, 2020
1 reply
0 views

My wife and I intended to start a rental business of buying a house(s) in another state and renting it out. We incurred expenses including home inspections, legal fees and a website but never ended up purchasing a property. Does the IRS allow related deductions under those circumstances?

A

Anonymous

these may be start-up expenses subject to IRC section 195

here's what the section says about abandonment

(2)Dispositions before close of amortization period
In any case in which a trade or business is completely disposed of by the taxpayer before the end of the period to which paragraph (1) applies (the date the business opens), any deferred expenses attributable to such trade or business which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165.

if you are audited by the IRS, they may want you to prove that you actually had an intent to start this business and it would be profitable (hobby loss provisions). failure to do so could result in a disallowance.

now I'm not staying the IRS will audit you. some returns are selected at random even if nothing appears amiss. others are based on items that seem out of whack to the norm.