As the average age of REALTORS® increases, so are the number of home offices. There are several contributing factors: IRS has relaxed the rules for home offices; as children have moved away from home, there is now room for an office; and the affordability of technology has made it possible to comfortably outfit a home office.
The following are the four tests that must be met to qualify for a home office:
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Exclusive - a specific area of
the home used solely for business
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Regular - the area must be used
on a continuing basis
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For your real estate business -
such as to keep important records, conduct prospecting activities, manage
listing and sale activities, etc.
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As your principal place of
business or as a place you use regularly to meet with customers - initial
meeting with buyers and sellers, meetings to show property, meetings to
write or present contracts.
The business percentage of the home
can be determined in one of two simple ways. The most common is to take the
square footage of the area used as the home office and divide it by the overall
square footage of the home. For instance, if the home office had 225 square feet
in a 2300 square foot home, the business percentage would be approximately 10%.
Another acceptable method is to take
the number of rooms used for the home office and divide it by the total number
of rooms in the home. If one room were used for the home office in a home that
had eight rooms, the business percentage would be 12.5%.
In addition to the specific area that
you are deducting as the home office, you are also entitled to partially deduct
some of the overall costs in the home such as mortgage interest, property taxes,
property insurance, utilities, security system, and general repairs such as
furnace or air conditioning repairs. If the utilities for the year were $6000,
it would be reasonable to deduct the business percentage of these items; in the
first example, it would be 10% or $600.
Regardless of whether you choose to
the home office election, you can deduct office supplies, separate business
telephone, Internet connection used for business, depreciation on office
equipment and furniture.
In 2002, the maximum deduction for
Section 179 Property is $24,000. This refers to personal property used in the
active conduct of a trade or business. The taxpayer can totally expense the
property in the year purchased or placed into service instead of depreciating it
over the life of the asset.
This would allow an agent to expense
a computer in the year it was purchased instead of depreciating it over five
years. Examples of items covered under this rule are cell phones, computers,
printers, digital cameras, software, furniture, and even vehicles that exceed a
certain weight.
For specific real estate information,
go to IRS site at:
http://www.irs.ustreas.gov/prod/smallbiz/realestate/tax_tips.htm