Q: I became a real estate agent this last year and I have heard from other agents that I can write off things like clothing and getting my hair done because I have to keep up a professional appearance at all times. Is this true?
A: The rule is that you can deduct the cost of clothing as a business expense only if:
- It is essential for your business;
- It is not suitable for ordinary street wear; and
- You don’t wear the clothing outside of business.
For example, the Internal Revenue Service has permitted business deductions for the cost of uniforms or special work clothes not suitable for personal wear, such as nurse’s uniforms, theatrical costumes, and clothing with a company logo.
Thus, you cannot deduct the cost of a regular business suit or other clothing that you can wear outside of business. However, if you purchase clothing with a real estate company logo on it, you may deduct the cost because it is not suitable outside of business. If your clothing is deductible, you may also deduct the cost of dry cleaning and other care.
A real estate agent or broker may not deduct the cost of a haircut, makeup or other expenses to maintain a "professional appearance." These are considered personal expenses by the IRS, and are therefore not deductible.
Only in extremely rare cases have such deductions been allowed. For example, in one case the tax court permitted an exotic dancer to deduct as a business expense the cost of breast implants.
Q: I bought a piece of unimproved land that I intend to build on for business. Can I deduct the cost as a business expense?
A: You cannot deduct the cost of land itself as a business expense. If you sell the land, you may deduct the cost from the sales price to determine the amount of your taxable profit, if any.
If you took out a loan to purchase the property, you may deduct the interest as a business expense. If you borrow money to construct a building on the property, you may deduct the interest you pay before construction begins and after it ends.
However, you may not deduct the interest you pay during the construction period. Instead, this cost must be added to the basis of your property and depreciated.
You may also deduct real estate taxes you must pay for the property. Any costs to maintain the property are also deductible.
Because land does not wear out, you get no depreciation deductions for raw land. However, if you build a structure on the property you will be able to take depreciation deductions for the building. If you build a commercial property, you’ll have to depreciate the cost over 37.5 years.
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.
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