Bob Parrish CPA, P.C.
A Professional Corporation
Introduction
Deductible Expenses
If you are a real estate agent or broker, a landlord, a professional property manager, a developer or are in the construction business, then the IRS considers you to be a Real Estate Professional. As such, you are privy to claim a number of tax deductions that the general public can not take advantage of.
The following are the categories of expenses that are typical to business professionals and examples that are specific to the Real Estate Professional.
Your deductible auto travel expenses are based on the number of qualified business miles that you drive during the year.
Your trips between home and work each day or between home and one or more regular places of work are considered commuting miles and thus are not deductible.
However, travel between business locations or daily transportation expenses in going between your residence and temporary work locations are deductible and thus should be counted as business miles.
Examples of deductible business mileage is travel to and from:
Client meetings
Escrow
Lenders
Showings
Caravans
Continuing education classes or programs
Out-of-town business trips
In addition to the mileage deductions, out-of-pocket expenses for parking meters, tolls and valets are 100% deductible. Make sure to keep receipts for all car operating expenses: gas, oil, repairs, insurance, car washes, car loan interest, vehicle registration, etc.
Make sure to document your business miles in a record book or calendar. Try whenever possible to:
When considering getting a new car, contact Bob Parrish CPA, P.C. to review the tradeoffs of leasing versus buying. And always make sure to keep a copy of your auto purchase document.
As you may or may not know, expenses of traveling away from home, overnight, on employment-related and/or continuing-education trips are generally deductible. Your home is considered to be the entire city or general area where your principal place of employment is located.
Out-of-town travel expenses include:
Document away-from-home expenses by noting:
Keep a detailed record of your expenses as you incur them. Always list meals and lodging separately in your records as different deduction rules apply to such expenses (i.e. meals are only partially deductible).
Receipts, generally must be acquired and retained to support each deductible business expense. However, if the business expense is less than $75, a receipt is not necessary if you record all the information in a diary.
Dues paid to professional societies related to your profession or business are deductible. Therefore do not forget to keep track, document and deduct your dues and fees paid to:
The basic local telephone service costs of the first telephone line provided in your residence are not deductible. However, toll calls from that line are deductible if the calls are business related. The costs (basic fee and toll calls) of a second line in your home or any other service are fully deductible, if used exclusively for business.
Therefore do not forget to keep track, document and deduct the costs of:
Should you qualify for this deduction then it is important that you document and keep track of the following expenses:
Business area of the home in comparison to
the total area of the home
Home mortgage interest expense
Real estate property tax expense
Homeowner's insurance cost
Repairs and maintenance expenses directly
and/or indirectly related to your home office
Cost of household utilities such as gas,
electricity and water
Educational expenses are tax deductible under either of two conditions:
The Real Estate Professional typically takes courses to satisfy the second criteria. For some professionals, such as Realtors, brokers, contractors and some property managers, their basic licenses require them to take and/or pass continuing education courses on a regular periodic bases.
Should you qualify for this deduction then it is important that you document and keep track of the following expenses:
All business professionals incur expenses that are ordinary and necessary in their normal course of work. If these expenses are not reimbursed by an employer or a client then they are generally tax deductible.
The following are examples of ordinary and necessary business supplies:
Briefcase
Stationary
Computer software and supplies
Fax supplies
Film and processing
Greeting cards
Lock boxes, keys and locksmith
Map books
Photocopy expense
Postage, shipping and freight
Any number of other office expenses
In addition to business supplies, most business professionals incur other miscellaneous business expenses that are ordinary and necessary in their normal course of work. If these expenses are not reimbursed by an employer or a client then they too are generally tax deductible.
The following are examples of ordinary and necessary miscellaneous business expenses:
Mortgage interest on business personal and real property (other than a personal residence) and interest paid on borrowed funds used to pay for ordinary and necessary business expenses is generally tax deductible.
The following are examples of ordinary and necessary interest expenses:
With the exception of Club Dues, any and all reasonable, necessary and ordinary meals and entertainment expenses sustained in the course of business are tax deductible subject to a 50% reduction.
Examples of ordinary and necessary meals and entertainment expenses are:
Restaurants
Shows
Sporting events
Theater
The costs of business assets which are expected to last longer than one year and that cost more than $100 are normally deducted differently on your tax return than are other recurring, everyday business expenses like business cards, office supplies, etc. Therefore it is important that the Real Estate Professional record expenditures to procure such assets separately.
Examples of such assets are:
Answering machines
Calculators
Cameras
Computer equipment
Copy machine
Fax machine
Pager
Recorder
Telephone
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Highlights of the Self-Employed 401(k) Plan |
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Thanks to new rules from the Tax Relief Act of 2001, it makes sense for small businesses – whose only employee is the business owner or the owners and their spouses – to open and contribute to a Self-Employed 401(k) plan. While most retirement plans provide a tax break and help save for the future, the Self-Employed 401(k) offers additional benefits such as:
Call me or visit my financial planning section for more information about this - Bob is licensed as a tax professional, investment professional, and insurance professional - please click for more information |
Although the above expense categories and examples are frequently used to offset income generated and/or gross receipts received, it is also very important that Real Estate Professionals be aware of other deductions that they can benefit from.
It is especially important for the Real Estate Professional who materially participates in the operations of rental real estate to be aware that ever since 1994 they are no longer subject to the Passive Loss Rules.
This means that they are no longer limited in their rental loss deductions. The $25,000 deduction loss limit and the $100,000 to $150,000 phase-out of losses rules have been repealed for qualifying professionals.
Realtor Expenses 1 Worksheet (Excel)
Realtor Expenses 2 Worksheet (Excel)
Realtor Expenses 3 Worksheet (Excel)
Rentals Worksheet (Excel)
Real Property Transactions (Excel)
Very truly yours,
Bob
Parrish CPA, P.C.
by
Bob Parrish CPA Engagement Manager
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5329 Gulf of Mexico Dr Ste 102
Longboat
3205 Kermit Hwy Ste 2
Odessa TX 79762
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Telephone —
FL 941/387-0926
TX 432/367-3465
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Fax —
FL 941/387-0823
TX 432/367-3465
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Email: bobparrish@pro1040.com On the Web: www.pro1040.com
License Jurisdictions
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CPA: FL, TX
Insurance: FL
Securities: LA, FL, TX
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