Deducting your real estate expenses

Real Estate Tax Talk

Q: Many agents are working at additional jobs as employees, receiving a W-2. Since that obviously involves the agent’s time, can you address this? Would that be a red flag to the IRS? Wouldn’t that mean an agent should be even more diligent documenting her activities in her real estate business?

If her job involves 40 hours per week, will she still be able to use her real estate expenses as deductions?

A: This scenario usually poses no problem for real estate agents. This is because most real estate agents have a very special tax status. Ordinarily, they are classified as statutory independent contractors (also called statutory nonemployees) for federal tax purposes. This means they are automatically considered independent contractors by the IRS, no matter how many other jobs they may have, or whether they would qualify as independent contractors under the ordinary IRS rules that stress the right of control exercised by the hiring firm.