Many people, even sophisticated real estate / property management professionals, don’t fully appreciate just how much money they can save with tax deductions.
What can you deduct?
There are dozens of possible tax deductions for real estate / property management professionals. Any expense for your property management business is deductible if it is:
- ordinary and necessary;
- directly related to your business; and
- reasonable in amount
Even a one-time expenditure can be ordinary and necessary as long as it helps your business in some way.
However, you cannot deduct personal expenses. For example, the cost of a personal computer is a deductible operating expense only if you use the computer for business purposes; it is not deductible if you use it to pay personal bills or play computer games.
If you buy something for both personal and business use, you can deduct only the business portion of the expense. For example, if you buy a cellular phone and use it half of the time for business calls and half of the time for personal calls, you can deduct only half of the cost of the phone as a business expense. Also, be cautious of how you treat your vehicle for business use. Make sure you have a log book to prove your business use which includes miles driven and purpose of travel.
Subject to some important exceptions, there is no limit on how much you can deduct, as long as the amount is reasonable and you don’t deduct more than you spend. As a rule of thumb, an expense is reasonable unless there are more economical and practical ways to achieve the same result. If the IRS finds that your deductions were unreasonably large, it will disallow them or at least disallow the portion it finds unreasonable.
Checklist of deductions
Here’s a checklist of common expenses for real estate agents, brokers and property managers that you can use to make sure you don’t miss any deductions this year:
- advertising expenses, including websites, mailing lists, newspaper advertising, fliers, online advertising, postcards, promotional materials, logo clothing, and anything else you pay for to market your real estate business;
- bookkeeping, accounting and legal fees;
- business gifts (up to $25);
- business meals and entertainment (only 50 percent deductible);
- cab fares for business travel;
- car and truck expenses, including business mileage, depreciation, insurance, interest on car loans, lease payments, license plate fees, parking expenses, and tolls;
- cell phones and Ipads;
- computer software;
- desk fees;
- home office expenses (if you qualify);
- insurance, including health insurance, errors and omissions insurance, business liability insurance, and business equipment insurance;
- interest, such as interest for business loans, interest paid on business credit cards;
- Internet access fees;
- map books;
- office equipment
- office expenses, including rent, cleaning and maintenance, and utilities;
- office supplies;
- professional dues and fees — for example, multiple listing service dues and dues paid to the local Chamber of Commerce, Realtor associations, and real estate license renewal fees;
- referral fees and commission rebates;
- retirement plan contributions;
- subscriptions to professional journals;
- real estate franchise fees;
- taxes, including payroll taxes for employees, state and local business taxes;
- telephone service fees;
- travel to business conventions, including transportation, lodging and food;
- wages and benefits paid to employees.
- training, Education and Licensing: Whatever you pay to maintain your ability to be an agent is deductible, as well as things you do to increase your skills, as well as what you are allowed to do in the field. Classes, seminars, books and certificates mostly all qualify (but not courses you take to pass the real estate licensing exam).
As always, feel free to contact me if you have any questions regarding your particular situation.
Richard Hart EA, CAA
Hart & Associates
Offices in Las Vegas NV, Manhattan NY and Beverly Hills CA
Disclaimer: LandlordSource does not represent the article content in this website as legal advice. It is shared information only and up to the reader to use this information responsibly, seeking legal advice as necessary to their business.