My husband and I started a real estate investment LLC in 2008. We took a class, had expenses setting up the LLC and purchased a property. In the same year I took a loan against my 401K to purchase the real estate, then was laid off from my job and rolled over my 401K to an IRA. All this being said, the money I borrowed from my 401k became income and a penalty for tax purposes. I thought it would all work out OK due to not having a positive cash flow for the real estate. When I went to get my taxes done I was told that we are not able to take the deduction from the real estate because we earned over $100,000 in 2008, part of that being $25,000 from the 401K. I was also told we could not take an education credit as we were over the $100,000 income. The amount we put out for the real estate class, property and other expenses was in the neighborhood of $55,000. That seems nuts that we can't take any of that because we are over in income. How can you ever get ahead? Or is this information I have been given incorrect?

Thanks