As a realtor, you may find yourself working from home often. The digital age has made it easier for professionals like you to operate from anywhere, including the comfort of your own home. The Internal Revenue Service (IRS) recognizes this and allows a home office deduction for those who qualify. However, there are important tax considerations to bear in mind when taking this deduction. Here are the top five:
Regular and Exclusive Use
The IRS requires that your home office be used regularly and exclusively for business. This means that the area of your home you claim as your office should not be used for any other purpose. For instance, if your children use the space for homework or if it doubles as a guest room, you may not qualify for the deduction. The landmark case Soliman v. Commissioner established that self-employed individuals can deduct home office expenses if they do not have a workspace provided by clients or are not paying for workspace themselves. As a realtor, if you use a specific area in your home regularly for your business and it is not used for any other purpose, you can claim the deduction.
Direct and Indirect Expenses
When calculating your home office deduction, it's important to separate direct from indirect expenses. Indirect expenses apply to your whole home, such as rent or mortgage payments, insurance, and utilities. You can deduct a business percentage of these expenses based on the total square footage or number of rooms in your home used for business. Direct expenses, on the other hand, apply only to your home office. These can include costs for painting or cleaning the room, and you can deduct 100% of these expenses.
Homeowners vs. Renters
If you own your home, you can deduct prorated mortgage interest, property taxes, and an allowance for depreciation of the cost of the portion of the home used for business. However, be aware that if you sell your home, any gain attributable to depreciation cannot be excluded from your income. If you rent, your computation for the home office deduction is more straightforward, as you only need to calculate a percentage of the rent.
Simplified Deduction
The IRS offers a simplified version of the home office deduction. Instead of tracking all your expenses, you can deduct $5 per square foot of your home used for business, up to 300 square feet, for a maximum deduction of $1,500. However, you still need to prove regular and exclusive use of the space. If your home office expenses exceed this amount, it may be more beneficial to use the regular method.
Partial Room Deduction
You don't have to dedicate an entire room to your business to claim the home office deduction. If you live in a small space and must use part of a room for your business, you can still claim the deduction. The key is to clearly define and document the area used for business.
In conclusion, the home office deduction can be a significant tax saver for realtors who work from home. However, it's important to understand the rules and keep accurate records. If you're unsure about any aspect of this deduction, it's always a good idea to consult with a tax professional. We are always available to help. Our Office is located In Phoenix, Arizona.
Comments(0)