Thursday, April 28, 2011

Real Estate Professionals and Home Office Deduction

The home office deduction is an area that trips up many real estate professionals. Many real estate professionals have a desk at the real estate office they work out of, but many times, the real estate professional prefers to work out of their home because it is easier for the real estate professional. The IRS does not care whether you work out of your home or the real estate office. However, if you have a desk at a real estate office, you are NOT ELIGIBLE to take the home office deduction on your personal income tax return (Schedule C).

In most cases, individuals who are employed in the real estate industry are not allowed to take the home office deduction on their personal income tax returns (on Schedule C). The reason for this is because most real estate offices provide a desk at the office location for the real estate professional, whether or not the real estate professional uses the desk that is provided for them.

It is better for the real estate professional to file an amended tax return, correcting the error (by removing the home office deduction) and paying the additional tax due, than to take the risk of an IRS audit and the IRS finding the error. If the IRS finds the error, the IRS will hit you with additional tax, fines and penalties, and possible criminal prosecution. The IRS could look at prior tax returns (for "closed years" - returns that are more than 3 years old). If this happens, you will definitely find yourself in some serious financial trouble (paying additional taxes, huge fines and penalties, as well as possible criminal prosecution and jail time).

If you are uncertain about your tax returns, or if you would like to have me review your tax return (for any year going back to 1992), please contact me privately.

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