A Guide To Home Office Deductions For Real Estate Pros

As a real estate professional, you likely use part of your home regularly and exclusively as your office. The good news is that you may be able to deduct expenses for the business use of your home on your tax return, which can result in substantial savings. As your real estate tax advisor, I've put together this guide to help you understand the home office deduction and ensure you are maximizing your eligible expenses.

Qualifying for the Deduction

In order to qualify for the home office deduction, you must use part of your home regularly and exclusively for business purposes. "Regular use" typically means on a continuous basis, such as daily, weekly, or monthly. "Exclusive use" means that specific area of your home is used only for your real estate business, not personal or family use.

In addition, your business use must be for the convenience of your employer. Since you are self-employed, this requirement is easily met for real estate agents and brokers. You also must clearly determine the percentage of your home devoted to business vs. personal use through square footage or rooms.

Allowable Expenses

If you qualify, you can deduct a portion of numerous household expenses, including:

• Rent, mortgage interest, taxes, insurance

• Repairs and maintenance

• Utilities like electricity, gas, water, trash removal

• Security system costs

• Cleaning expenses and pest control

• Internet service

• Homeowners association fees

You calculate the deduction by taking the business use percentage of each expense. For example, if 25% of your home is used as a home office, you can deduct 25% of eligible costs.

In addition to these indirect expenses, you may also deduct direct costs like office supplies, equipment, and furniture purchases made specifically for the home office. For example, if you put in bookshelves or buy a computer in the office, 100% of these would be deductible.

Simplified Option

Figuring all these percentages can get complex, so as a real estate pro you may qualify for the simplified option. This allows you to claim $5 per square foot of home office space, up to a maximum deduction of $1,500 per year. While you won't document expenses, you can claim this deduction based on the square footage alone.

Being Strategic With the Deduction

To maximize the tax benefits of the home office deduction, be strategic in your approach:

• Use it to avoid limits on other deductions like travel meals.

• Claim 100% immediate deductions rather than depreciating items over time.

• Review limitations so your deduction offsets self-employment taxes.

With proper planning and tracking, the home office deduction can help lower your tax bill as a real estate agent or broker. As your advisor, I'm here to help you use this deduction optimally and ensure full compliance with current IRS rules and limitations.

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