Accounting for Initial Costs of Finding Parks

I’m beginning to look for a park to buy and am starting to incur some costs (e.g. bootcamp/education, postcards, postage, mileage, etc). I think the easiest thing to do is claim these expenses on a Sched C, but was wondering if I should set up a management entity (S-Corp or LLC) instead.

Also, will sellers care if I’m using a personal (yahoo) email account vs. a business email account? I’m thinking it might actually be advantageous to just a regular guy looking for a park when working with Mom & Pop sellers. Any and all thoughts are much appreciated!

You need to check the tax code or talk to your CPA about deducting costs of searching for properties. I am not a tax professional - but you may be surprised to learn that certain expenses are not deductible.

As far as which email you use probably does not matter much IMO. Probably more important is whether or not you want to mix all your personal and business email in the same account.

I actually got audited by the IRS on this exact issue. In 2006 I deducted my real estate expenses (seminars, travel to look at deals, legal on the deal I had under contract, etc.) on my Schedule C even though I had not yet closed on my first MHP. But I was actively looking for a deal in good faith, and did have one under contract by the end of 2006. (I did not have my LLC set up in 2006. I just itemized and deducted the expenses.)

When the IRS came calling a few years later, I had all my receipts, which I sent them, and I could document that I actually had under contract by the end of 2006 my first property (which closed in March of 2007). From 2007 onward I could show profits from my MHP (and, of course, that I was paying more in taxes) and that the prior deductions were directly related to subsequently buying that MHP and earning money. (FWIW, I don’t think you actually have to have anything under contract - just document that you are making a best efforts to buy real estate and earn money.)

The IRS guy reviewed my receipts, and gave me a clean bill of health. He actually apologized for wasting my time.

Your mileage may vary,

-Jefferson-


Thanks for the replies, gentlemen, much appreciated!

Jefferson - when you say that you did not have your LLC set up, are you talking about a LLC used to manage the property LLCs? Been wondering about setting up the mgmt LLC now, even though I don’t have a MHP yet.

Thanks,
Drew

DrewP -

My point was that the expenses were deductible even though I did not have an LLC set up. I was a natural person injuring the costs. All still deductible. There is no reason to incorporate until you are a week or two from closing. Set up an LLC in the state in which your MHP will be. It usually costs about $100 annually. But there is no need to incur the expense until you are close to closing.

Best,

-jl-


Got it, thanks for clarifying Jefferson.