Tax Tips for Real Estate Professionals

IRS tax tips offer limited help for real estate professionals.

April 1, 2002

As a real estate professional, you may have a few questions about how to fill out your taxes. How much of a deduction should you take for your car? What deductions are allowable for a home office? These and other questions can be answered online at IRS.gov, which maintains a special section for self-employed individuals. However, you have to be pretty tax savvy to understand the directions.

Just getting to the site can be confusing. Make sure you key in the right URL. The IRS is a government site, hence the .gov top level domain. But plenty of people will assume that the government snagged the most popular domain version--IRS.com. However, neither IRS.com nor IRS.org are affiliated with the IRS. Instead, they take you to advertising sites. You may get some questions answered for free at these sites, but their real purpose is to provide leads to tax preparers or to sell tax-related software and other products and services.

Only IRS.gov is the real deal. Although it contains helpful information, the Web site was directed by the same people who wrote the voluminous and confusing tax code, so don't expect taxpayer-friendly miracles. Of course you are smart enough to navigate this Web site, but if you'd like to save a little time, here are a few shortcuts to common questions by real estate professionals.

Scroll down to Contents and click on Individuals. (How do you like that 1950s hair and dress?) A fresh page will pop up with another Contents list. (Hey, Dad - can I borrow the Edsel?)

Obviously, it makes a difference whether you are self-employed or an employee of your firm, but for the purposes of this article, we'll follow the links for the self-employed.

Don't click Industries/Professions - click Self-employed. Industries/Professions includes real estate, but when you click through, it takes you right back to Self-employed.

Although the IRS can't be expected to understand the nuances of every profession, there are some guidelines for real estate that are helpful, even if they could use more detail. If you go to the FAQs (frequently asked questions) you will often be led to the appropriate IRS form without much further enlightenment.

For example, real estate professionals spend a great amount of time in their cars. How much should you be able to deduct on your mobile office? Car expenses are listed under travel and entertainment on your Form 1040, line 10--not exactly intuitive for lay tax preparers.

According to the IRS, you can take mileage whether you own your car or lease one. Mileage includes depreciation, or you can depreciate accordingly: If your car was placed in service in 2001, the maximum deduction for appreciation is $3,060 for the first year, $4,900 for the second year, $2,950 for the third year, and $1,775 for the fourth and following years. Only your own solid record-keeping will tell you whether you come out ahead to take the mileage or the depreciation. You also can't deduct both mileage and expenses, unless they are business-related tolls and parking fees.

Home offices are another land-mine of confusion, but much better answered than the car allowance question. What's allowable? To find out go to Small Business/Self-employed. You'll find a list of rules that qualify what is and isn't a home office and who qualifies to use one. The space must be used solely for the purpose of business, and be used on a continuing basis. Though most salespeople don't meet customers in their home offices, your dedicated space does qualify as a home office if that is where you keep your records. To compute your home office deductions, click here.

Other helpful links are:
Business travel--keep those conventions in mind
Real estate tax laws
Small business tax tips
Advertising expenses

If all else fails, and you can't find the answers to your questions, you can contact the IRS directly or contact IRS.com for free advice from a preparer such as H&R Block.

(c) Copyright 2002 Realty Times. Reprinted with permission.

Note: This information provides general legal information and should not be relied upon as legal guidance. Before acting, both the relevant laws and legal counsel should be consulted. This information should not be construed as specific legal advice nor as an opinion on particular facts, cases, or situations.

Blanche Evans is a writer/editor and CEO of evansEmedia. Formerly, she was a senior editor with Realty Times, where she was named by REALTOR® Magazine as one of the most influential people in the real estate industry.

Notice: The information on this page may not be current. The archive is a collection of content previously published on one or more NAR web properties. Archive pages are not updated and may no longer be accurate. Users must independently verify the accuracy and currency of the information found here. The National Association of REALTORS® disclaims all liability for any loss or injury resulting from the use of the information or data found on this page.

Related