Tax Deductions for Realtors
A Realtor is in a line of work that requires a lot of knowledge about the tax codes. An understanding of the tax deductions available for realtors should be easy for them.
Tax Deductions for Realtors
Most Real Estate transactions have serious tax implications. They involve everything from capital gains to the interest paid of real estate loans. It is an important part of a Realtors job to understand the tax codes and how they will impact the transactions of their clients. In addition to this, many realtors are involved in the buying and selling as well as the management of rental properties for their own personal profit.
Need Help with Tax Debt
Problems?
Click Here To Talk to a Tax
Expert
This knowledge of the tax codes should serve the Realtor well in understanding the tax deductions available when he files his own tax return. Many Realtors are independent contractors. They are, in effect, owners of their own small business concern. As such, they are entitled to deduct almost all of their job related expenses as deductions against their income. Realtor professionals are eligible to deduct 100% of their Rental property loss. To qualify as a professional realtor at least one half of all the services rendered by the taxpayer must be in the area of Real Estate. They also must spend a minimum of 750 hours a year working at the Real Estate Business and the taxpayer must have materially participated in the providing of the service.
When it comes to personal deductions, the IRS uses the terms ordinary and necessary. Ordinary and necessary refer to just about any expense that is common and appropriate. Such items as entertainment expense, automobile expense, and home office use are ordinary and necessary expenses for a Realtor. Entertainment expense has some special requirements before it can be utilized as a deduction. In the first place, only 50% of the cost of meals, etc, can be taken for any single event.
Need Help with Tax Debt
Problems?
Click Here To Talk to a Tax
Expert
The Realtor generally works out of his automobile. As long as a certain portion of the automobile expense is called personal use and not part of the deduction, the remainder is a legitimate business deduction. If the automobile is driven home, that is considered commuting and is no different than any other worker who drives to and from work. However, all miles driven for work purposes are deductible. The deduction can be calculated either by keeping a record of the miles actually driven and using the per mile allowance determined by the IRS, or actually records of the expense can be kept.
When the Realtor works out of his home, the rules for home office deductions apply. The best way to determine the amount of household expenses that can be used as a deduction is to calculate the total square footage of the home and then calculate the actual square footage of the office area. Be sure to include any space used for storage or for office machines. The percentage of the total square footage used for business purposes give you a percentage to use for household expenses. The Realtor has many tax deductions available and he should be knowledgeable enough about the tax laws and tax codes to minimize his own tax liability. The Realtor also can use his knowledge of tax law to evaluate the potential tax consequences of Real Estate transactions for both himself and his clients.