Most commercial real estate brokers are independent contractors with 1099 compensation. Independent contractors are essentially a small business. Operating as a business allows you the opportunity to deduct certain expenses related to the business. A common expense is your home office.
The ability to deduct most of the expenses related to your home office can be different for many CRE brokers. To qualify for a home office deduction, you must ask yourself a few questions.
Is your home office the only office available to you? Meaning, you do not have access to another office with your brokerage firm.
Is your home office regularly used for your business?
Is your home office used exclusively for your business? And not a guest room or also used for other personal purposes.
The first question is the most difficult to navigate. Most CRE brokerage firms have an office in your area. Not every broker operates out of the brokerage firm’s office though. And many offices are in a shared communal setting without your name on a private office.
This could be your situation and you never report to the brokerage firm office. However, the IRS could still shoot down your home office expenses because the brokerage firm office in your area is available to you but you choose not to use it.
Some brokers work for national brokerage firms without a large network of offices. This could be you and there is not a local office for you to work from. This example is a more confident situation for your home office to be deductible.
Assuming you meet the requirements for deducting your home office expenses, you will need to keep track of several expenses and variables.
First, you need to know the square footage of your home office and for your entire home. You will calculate the percentage of square footage used as your home office relative to your entire home.
Next you will add up various expenses in operating your entire home. For example, mortgage interest, property taxes, homeowners insurance, utilities, and internet.
Then you will multiple the total of those expenses by the percentage of your home that is used as the home office to come up with the proportional cost of your home office.
Additional expenses related directly to the home office maybe deductible without prorating for square footage. And example would be any furniture purchased specifically for the office.
Keep in mind that the home office deduction is different than home office supplies. You may not qualify for a home office deduction but you may still have deductible expenses related to home office supplies, like a printer, ink, paper, and other general office goods.
Qualifying for a home office deduction isn’t easy but it is certainly a deduction that shouldn’t be overlooked.
