Many real estate brokers and agents practically live on their mobile phones. Thus, how they are treated for tax purposes is of little importance.
This week the Internal Revenue Service issued guidance that is of great interest to employees who are provided mobile phones or similar devices by their employers. Unfortunately, it does nothing for the vast majority of real estate agents and brokers who are self-employed (not employees).
In the past, the IRS treated mobile phones as "listed property." Whenever an employer provided an employee with a mobile phone, he or she had to keep track of how it was used — whether for business or personal use.
Any personal use of the mobile phone had to be valued and added to the employee’s taxable compensation.
Starting in 2009, mobile phones were no longer classified as listed property, and the IRS has decided that it is no longer necessary to keep records of how a mobile phone is used by an employee so long as it is used primarily for noncompensatory business reasons.
Examples of such noncompensatory business reasons for providing an employee with a mobile phone include the need for an employer to contact an employee for work-related emergencies or the need for an employee to contact clients outside the office.
If these requirements are met, the mobile phone is a nontaxable employee fringe benefit. This is so even if the employee uses the mobile phone some of the time for personal calls.
Thus, for example, if a real estate broker provides an employee-assistant with a mobile phone so he or she can call into the office and/or call clients outside the office, the phone is a nontaxable employee fringe benefit and the employee need not keep track of how the phone is used.
What if the employer reimburses an employee for the cost of using a mobile phone for business, instead of supplying one itself? The reimbursement is also treated as a nontaxable employee fringe benefit if the phone is used primarily for noncompensatory business reasons.
Unfortunately, the IRS’s new rule does nothing for self-employed people who use mobile phones for their business, which includes the vast majority of real estate brokers and employees. The cost of the mobile phone itself must be depreciated or expensed, the same as for any other business equipment.
The monthly cost of mobile phone usage may be deducted each year as an ordinary and necessary business operating expense. However, if the mobile phone is used both for business and personal purposes, the owner must keep track of the amount of time it is used for each purpose.
The percentage of personal use cannot be depreciated or deducted as an operating expense.
For example, if a broker purchases a mobile phone for $200 and pays a $100 monthly mobile phone bill, and uses the phone 50 percent of the time for business use and 50 percent for personal calls, he or she can depreciate only $100 of the cost and deduct $50 of the monthly phone bill as a business operating expense.
Stephen Fishman is a tax expert, attorney and author who has published 18 books, including "Working for Yourself: Law & Taxes for Contractors, Freelancers and Consultants," "Deduct It," "Working as an Independent Contractor," and "Working with Independent Contractors." He welcomes your questions for this weekly column.