- Verifying Your Status as a Real Estate Professional
- Tax Deductions for Real Estate Professionals
- Meeting Rooms Are Tax Deductible
Q: Can real estate professionals deduct meeting room rentals on their taxes?
A: Yes, meeting room rentals are deductible as long as the space is used exclusively for business activities, such as client meetings or team presentations.
DISCLAIMER: The information provided in this article is for general informational purposes only and should not be construed as professional tax, legal, or financial advice. Alliance Virtual Offices is not a tax preparation service, accounting firm, or legal advisor. We do not provide personalized tax advice or tax filing services.
It’s no secret that freelancers, independent contractors, and entrepreneurs are ditching the traditional office for coworking space subscriptions and rented meeting rooms to conduct their businesses from all over the world. Real estate professionals like agents, sellers, brokerages, and Airbnb investors are no exception. Shared workspaces are ripe with opportunity for networking, business growth, and work flexibility. If you’re a real estate professional looking for tax deductions, it’s important to know what qualifies, traps to avoid, and how to claim the deduction.
Before we dive in, there are three things you need to know as a real estate professional:
- You’re eligible for many tax deductions as a small-business.
- Rented meeting rooms and coworking space is fully deductible (with restrictions).
- If you live in these states, you hit the deduction jackpot (i.e. South Dakota, New Hampshire, Nevada). These too (i.e. Wyoming, Delaware, Florida).
Verifying Your Status as a Real Estate Professional
Congrats, you’re a pro at real estate and might be handsomely rewarded! Before you celebrate, let’s consult the IRS guidelines to determine your legitimacy. We think you are, of course, but let’s make sure the IRS does too. They consider you a real estate pro if you’re involved in:
- Development or redevelopment
- Construction or reconstruction
- Acquisition or conversion
- Rental, management or operation
- Leasing and/or brokerage
But wait, there’s more. You must also meet both of the following requirements:
- You must spend more than 50% of your working hours in real property trades or businesses.
- Your annual work hours must be more than 750 hours. Any work performed as an investor does not apply. You’ll need to provide proof of your work, and the hours allotted.
While prepping for tax season as a real estate professional can be daunting, it doesn’t have to be with the right knowledge and tax prep in place. In this article, we’ll cover what expenses are tax-deductible, how to claim them, and whether meeting rooms and coworking spaces can be deducted. Short answer—yes!
Tax Deductions for Real Estate Professionals
Investopedia.com defines a tax deduction as “an expense that an individual taxpayer or a business can subtract from adjusted gross income (AGI).” By reducing your taxable income, you reduce the amount of income tax owed. The government won’t penalize you for buying a stapler, and that hard-earned stapler money comes back to you.
Ideally, that money is funneled back into your business to help you achieve your long-term business goals and successfully profit from your tax deductions. In addition to office supplies, you can also deduct other tax-deductible expenses as a real estate professional.
Deductible expenses include:
- Business expenses
- Home office expenses (the category that meeting rooms and co-working spaces fall under)
- Travel expenses
- Commissions paid forward
- Brokerage fees AKA desk fees
- Continuing education fees
- Interest fees
There are sub-categories under each of the above expenses, so make sure to account for those as well with the help of a tax professional.
Understanding How Tax Deductions Work
If you’re going solo on your tax preparation, it’s important to understand that deductions don’t directly lower your tax bill. Instead, they lower the amount of income you get taxed on, which means you end up paying less overall to the IRS.
Pro-tip! Here’s how to calculate your taxable income:
- Calculate your gross income from all taxable sources (commissions, referral fees, etc.)
- Subtract your eligible deductions from your total gross income
- The resulting amount is your taxable income, which is used to calculate your tax liability.
There are two ways to claim deductions:
- Standard deduction: Based on your status, you claim a pre-determined amount from the IRS that reduces your taxable income.
- Itemized deductions: A list of your eligible expenses if your costs exceed the standard deduction amount. Schedule A Form 1040 will be needed here.
Itemized deductions are recommended for real estate professionals, as your expenses typically exceed the standard rates. Consult with a tax professional to see which option is best for you and your business in the long term.
Deductible Business Expense Requirements
According to the IRS, business expenses are expenses you don’t add to the cost of your services or products but can immediately deduct in the corresponding tax year. There are two stipulations for an expense to be deductible:
- It must be ordinary
- It must be necessary
An ordinary expense is commonly accepted in your field of business. A necessary expense is helpful and appropriate for your business. Note that it doesn’t have to be indispensable to be considered necessary.
If you have an expense that falls between the categories of both business and personal, you must deduct the percentage used for the business. To calculate the percentage of time your space is used for business versus personal use, see this article.
If you use a home office, you must meet four requirements. The space needs to be:
- Exclusive
- Regular
- For your business, and
- Either your principal place of business used regularly to meet with customers, or a separate building (not attached to your home)
Exclusive use is a specific part of your home where you solely carry out work activities. Working in your kitchen unfortunately doesn’t count as a home office. It has to be exclusively for work, like a spare room converted to a home office. Regular use means a space you use continuously, such as every workday.
Meeting Rooms Are Tax Deductible
Rented office spaces and meeting rooms count as business expenses, but only if you use them exclusively. For example, if you rent a meeting room outside your home and occasionally work from your home office, your home office won’t qualify, and you can’t take the 1099 rent deduction afforded to small businesses.
How do you know if your meeting room is tax deductible? If you use the rented office space to meet clients, hold team meetings, lead presentations, train, work solo, or conduct interviews, the IRS views the space as ordinary and necessary.
Without proper documentation, though, it doesn’t count as a business expense. Record the date, a quick note of why you used the space (e.g. “Client debriefs with Scott M”), and the receipts, invoices, and contracts for proof. This type of expense falls under the “Rent or lease — other business property” category. Keep in mind that the space should be for business use only.
Coworking Spaces Are Tax Deductible
Do you pay incurred membership fees and drop-in expenses from coworking spaces? They’re tax deductible, but only if you’re performing work as an independent contractor (like a 1099 employee or freelancer) and/or as an employer.
If you’re an employer purchasing coworking memberships or day passes for you and/or your employees, you can deduct these expenses from your taxes. It floats the same way as renting traditional office space—it’s a business expense.
Tax Deductions at Work:
Sarah Roberts, a real estate attorney, is renting a private room for client consultations to review legal documents and contracts, and handle disputes. Since Sarah is an attorney, she can fully deduct the cost of the room for legal consultations. If this room were used for non-business activities, like networking events or educational workshops unrelated to her practice, the deduction would be partially reduced.
Keeping detailed records is vital for a thriving business and a happy tax preparer. The forms and documents you’ll likely need are as follows:
- Schedule C- Profit or Loss from Business
- Schedule C-EZ – Net Profit from Business
- Mileage log – for vehicle expenses
- Home office expenses worksheets – to track and record home office expenses
In addition to these forms, you should also be sure to maintain:
- Receipts and invoices for all business expenses
- Bank and credit card statements
- 1099 forms received from brokers or clients
- Records of all income, including cash payments
- Documentation for any asset purchases and improvements
Keep records in a print and digital filing or bookkeeping system for maximum peace of mind.
Deductions Are Financial Opportunities
Tax deductions are opportunities for financial growth and security in the long-term. Keep in mind that meeting rooms and coworking spaces must qualify as ordinary and necessary, and that they’re used exclusively and regularly for your business alone, with detailed records of use for proof. Use Schedule C forms for filing and always consult with a tax professional for accuracy. Follow these guidelines and you’ll be well on your way to cashing in on those write-offs with confidence.
Learn More About Flexible Work
With the proper documentation and the help of a tax professional, you can maximize your tax deductions while remaining compliant with local and federal tax laws. If you’re looking for a professional meeting room or flexible coworking space that caters to real estate professionals like yourself, contact us at Alliance Virtual Offices.
DISCLAIMER: The information provided in this article is for general informational purposes only and should not be construed as professional tax, legal, or financial advice. Alliance Virtual Offices is not a tax preparation service, accounting firm, or legal advisor. We do not provide personalized tax advice or tax filing services.
This content is not intended to be a substitute for professional advice. Tax laws, regulations, and deductions vary based on individual circumstances, business structure, location, and are subject to change. Before making any tax-related decisions or implementing strategies discussed in this article, readers should consult with a qualified tax professional, CPA, or tax attorney familiar with their specific situation.
While we strive to provide accurate and up-to-date information, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the information contained herein. Any reliance you place on such information is strictly at your own risk.
Alliance Virtual Offices shall not be liable for any loss or damage, including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this information.
Tax examples provided are simplified for illustrative purposes only and may not reflect the complexity of actual tax situations. Tax deduction eligibility criteria, documentation requirements, and calculation methods should be verified with the appropriate tax authorities or your personal tax advisor.
