With over 800 changes in the tax code, some of which affect home offices, this year promises to be kinder to self-employed professionals such as REALTORS®. But agents are finding that despite some recent landmark decisions, the home office deduction is still out of reach for most.

Linda Gould, tax counsel for the National Association of REALTORS® says, "The law is a mess, but one thing hasn't changed. The only time a REALTOR® can qualify for a home office deduction is if an office isn't provided anywhere else by the employer. If Century 21 provides an office space for you, you do not get a home office deduction."

Many REALTORS® were heartened when a physician took his case for the home office all the way to the Supreme Court in 1995. As an anesthesiologist, the physician had working privileges at three different hospitals, but maintained a home office strictly for administrative duties related to his profession.

The IRS claimed that because he did not perform anesthesiology in his home, that he didn't qualify for the deduction. Although the Court decided against the doctor, the publicity surrounding the case let to Congress clarifying the tax code for those who do not provide services in the home, but use an office for administrative purposes.

"If you use the home office for administrative purposes only, whether or not you provide services in your home and the employer offers no other office for you, you can take advantage of the home office deduction," says Gould.

REALTORS® can deduct some items associated with the employer-provided office. "If the investment you make falls under "ordinary and necessary business expense" rules, you can take a deduction," explains Gould. "But if you are buying an investment quality Oriental rug, and put it in your office, and you are the only one with such an expensive rug, the IRS probably won't allow it."

If a REALTOR® wants to save money on taxes, often there are deductions which are overlooked.

"It has been my observation that agents are a really sophisticated group," says Gould. "But sometimes they can overlook license fees, education expenses, and fail to make use of car deductions."

"The key is records. What all agents need is a systematic way to keep receipts that show that the purchase was used in their business. Make notes on them so you don't get personal receipts mixed in with business."

The IRS asks that records be "contemporaneous." In other words, keep bills together, receipts in another group, and keep business and personal records separate.

For new agents who don't quite know the ropes, Gould suggests, " When people join the ranks of self employed, they have to be conscious of what is used for business. Keep a notebook in the car. Write when you use the car to show a house. When you receive your Internet bill, write on it that you used the Internet to look for a house."

"The better habits you have in record keeping, the easier time you will have at tax time."

Published: March 4, 1999

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