Comments on: Tax Deductions for Real Estate Agents

By: 7 Timely Tax Tips for Realtors | SayEducate Money Management BLOG-Magazine

7 Timely Tax Tips for Realtors | SayEducate Money Management BLOG-Magazine — Fri, 10 Feb 2012 04:02:57 +0000

[...] 3. Business entertainment — If you take your clients out to lunch, attend a seminar or host a class at your home, those expenses can be deducted. Be careful as these expenses must truly be related to your work warns the Upstart Agent. [...]

By: patriceann

patriceann — Mon, 06 Feb 2012 03:47:39 +0000

If I just started as a part time real estate agent and have paid a number of fees, but have not sold anything, can I deduct those fees from my 2011 taxes? e.g. licensing fees, board fees, MLS fees, etc. Thanks

By: mktcycler

mktcycler — Mon, 14 Nov 2011 01:31:13 +0000

If I as a licensed agent buy an investment property, is the commission split I earn acting as my own “buyer”s agent” treated as taxable income, or can I treat it as a reduction in basis?

By: Tracy bunch

Tracy bunch — Wed, 12 Oct 2011 04:57:47 +0000

I am unclear why I cannot count a part of clothing expense off on my taxes. I buy clothes to wear for work only. Believe me, I do not dress up any other time because I am tired of dressing up each day. I was told by my accountant that I could not count any of this off on taxes.

By: weasel62

weasel62 — Tue, 13 Sep 2011 05:32:40 +0000

You certainly can. Once you become a real estate agent under a broker, you are holding yourself out to conduct business and considered to be engaged in business activity for profit- expecting to make a net profit ( not a leisure activity). If you incur expenses but have no sales, you have a loss on Sch C which will go on front of your 1040 tax return. You-the real estate agent- DO NOT HAVE to match expenses against revenue ( matching principle of accounting- in other words, you don’t have to wait for income to match against expenses you have incurred. Also, it doesn’t matter how much time you spend in your real estate business- this doesn’t determine when and if you can deduct expenses. This applies to passive activities- your real estate activity is not passive. Example of passive activity is rental property-and even then, for real estate agents, there are exceptions to passive activity rules. Here is bottom line, you can deduct all expenses incurred in your real estate business that the IRS considers Ordinary and Necessary -and reasonable- to your business ( i.e- a Rolls Royce is not reasonable although it is a car, and a car is ordinary and necessary for your business).

I will say this- regarding your status as a new agent- you may want to stay clear of the cost you incurred prior to becoming an licensed agent. These expenses are more likely to be considered start-up costs and not all deductible in your first year. Start-up costs are expenses and cost of getting the business ready for business.Read for business is the day you are able to work with a client. Reckon of it like this- if you were building a McDonalds, you are in business the day you open your doors to customers. So, I take this as the day you sign on with a broker.

One last caveat- you loss can be applied to another tax year. This is tough and you need to consult with tax advisor for help. In a nutshell, you typically can carry the Sch C loss back 2 years ( amended returns), and then forward for 20 years until it is really used up against income. You can elect to carry the loss forward – and not back 2 years- but this must be done ( elected) at the time the tax return is filed timely by making the election and attaching to 1040 tax return. The loss is place on the front of 1040 under Other Income ( with explanation reference worksheet to show nature of loss.

Sorry for wordy response- I saw several answers that were somewhat misleading and didn’t want you miss-out on your tax return.