Tax day is a little over a month away, which means it’s time for real estate agents to think about tax deductions. Real estate agents can deduct nearly anything they buy for their business so long as it is an ordinary item, reasonably priced, and necessary for business.
Truck and car expenses represent the number one deductions claimed by small businesses. As a real estate agent, you may deduct the cost of all driving you do for business—not including your daily commute to work. There are two ways to deduct: creating an itemized list of gas, oil, repair payments, etc., or you may simply keep track of the miles you travel for business and use the standard mileage rate provided by the IRS to calculate the deduction.
Expenses required to maintain your office, like rent and utilities, are tax deductible. If you work from home, you may be able to make a home office deduction. If you’re a renter and you work from home, you may be able to deduct a portion of each month’s rent.
If you have to travel for your real estate business, certain travel expenses may be deducted. Airfare, other transportation expenses, and lodging expenses are all deductible. Only 50% of meal expenses may be deducted. If you’re going to deduct meals, be sure they are somewhat expensive and directly related to business. Otherwise, they’re not worth the risk of an IRS audit.
Deducting entertainment expenses is another danger zone. Like meal expenses, you may only deduct 50% of the cost, and you must be able to prove that you engaged in serious business discussion before, during, or after the event. Save this for expensive, objectively business-related entertainment expenses only.
Expensive items and property like cars, computers, buildings, and office furniture lose value every year, and that lost value is considered an expense that you can deduct from your taxes. Internal Revenue Code Section 179 states that small businesses may depreciate long-term business property all at once or little by little over the years.
Premiums for business liability insurance and other coverage specifically for your business may be deducted. Self-employed real estate agents may deduct 100% of their health insurance premiums as well. What about title insurance? Tell your clients that title insurance isn’t tax deductible, however what they spend on title insurance and closing services do get added to their purchase basis for tax purposes.
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Lakeside Title Company is a Columbia, Maryland title insurance company that serves builders, lenders, and realtors in Maryland, Washington D.C., Northern Virginia, and Southern Pennsylvania. We close over 4,000 transactions a year from 14 different locations. For more information on title insurance, title searches, and closing services, please visit our homepage.
If you, a colleague, coworker, client, friend, or family member has a question for an attorney, please contact Lakeside Title Company’s affiliated Law Firm, Deardorff, Rath & Pichon, LLC. Click here to contact Lakeside Title Company OR Deardorff, Rath & Pichon, LLC.
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Please note, this blog is not to provide any legal advice regarding taxes and/or tax consequences.