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You can deduct expenses for the business use of a work space in your home, as long as you meet one of the following conditions:
If you use part of your home for both your business and personal living, calculate how many hours in the day you use the rooms for your business, and then divide that amount by 24 hours. Multiply the result by the business part of your total home expenses. This will give you the household cost you can deduct. If you run the business for only part of the week or year, reduce your claim accordingly. For more information, see Interpretation Bulletin IT-514, Work Space in Home Expenses. The capital gain and recapture rules will apply if you deduct capital cost allowance on the business use part of your home and you later sell your home. For more information about these rules, go to Line 9936 - Capital cost allowance (CCA). If you rent your home, you can deduct the part of the rent and any expenses you incur that relate to the workspace. The amount you can deduct for business use of home expenses cannot be more than your net income from the business before you deduct these expenses. In other words, you cannot use these expenses to increase or create a business loss. You can deduct the lesser of the following amounts:
To calculate your business-use-of-home expenses, complete the "Calculation of business-use-of home expenses" chart on Form T2125. For an example of the calculation of these expenses, go to Calculating business-use-of home expenses. Enter on line 9945 your share of the amount from line 3 in the chart. The expenses you claim on this line cannot have been claimed elsewhere on Form T2125. Here are the most common tax deductions taken by real estate pros:
1. Car Deductions: The single most claimed tax deduction for all small businesses is car and truck expenses. The cost of all driving you do for your real estate business, with the important exception of commuting to and from your home to work, is tax deductible. If you like recordkeeping, you can keep track of all your car expenses to figure your annual deduction. But, if you’d rather not keep track of how much you spend for gas, oil, repairs, car washes, and so forth, you can use the standard mileage rate. (Check the IRS website for current annual rates.) When you use the standard rate, you only need to keep track of how many miles you drive for business, not how much you spend on your car. 2. Office Expenses: The amounts you spend on your business office are deductible business expenses. For example, you may deduct the rent and utilities you spend for an office. But, if you work at home, you may be able to deduct the cost of your home office. This deduction is particularly valuable if you are a renter because it enables you to deduct a portion of your monthly rent, a sizable expense that is ordinarily not deductible. 3. Business Travel: You may also deduct your expenses when you go out of town for your real estate business. These include airfare or other transportation costs and hotel or other lodging expenses. But, you may only deduct 50% of the cost of meals when you travel on business. If you plan things right, you can even mix pleasure and business and still get a deduction. 4. Meals and Entertainment: The days of the deductible three-martini lunch are pretty much at an end. To deduct the cost of a meal in a restaurant or an entertainment event like a baseball game or theater visit, you must have a serious business discussion before, during, or soon after the event. Moreover, you may only deduct 50% of your business meal and entertainment costs. 5. Depreciation: When you buy property for your business that will last more than one year, you may deduct the cost a little at a time over a period of years. This process is called depreciation. Examples of depreciable property include cars, computers, and office furniture. However, you don’t always have to depreciate long-term business property. Small businesses have the option of deducting the entire cost of such property in a single year under Internal Revenue Code Section 179 or using bonus depreciation. This enables you to get a big deduction in a single year rather than spreading it out over several years. 6. Supplies: Supplies are business items that you use up in less than one year. They include everything from paperclips to postage stamps. 7. Legal and Professional Services: You can deduct fees that you pay to attorneys, accountants, consultants, and other professionals if the fees are paid for work related to your business. 8. Insurance: Insurance you buy just for your business is deductible—for example, business liability insurance or insurance for business property. If you have a home office, you may deduct a portion of your homeowners insurance. Self-employed people are also allowed to deduct 100% of their health insurance premiums from their income taxes. 9. Commission Rebates: With real estate prices rising in Canada, customers who are either buying or selling regularly ask their agent for a break on their commission so as to aid in closing costs, likely renovations, or to decrease their mortgage balance after closing. These commission rebates are 100% deductible to the agent. Here’s a checklist of common expenses for real estate agents and brokers that you can use to make sure you don’t miss any deductions:
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