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Many real estate agents pay rent to assist in business operations. They pay for work-space at their broker’s office or rent an office outside their home. They rent tables at home shows and promotional events, storage units for signage, travel autos, leased business-use vehicles, equipment to clean and repair homes, a variety of office equipment, and the occasional home-showing bounce house.
So, how and where is this rent deducted by a sole proprietor Real Estate Agent? Like many tax deductions, the answer is messy (to say the least). This article will attempt to answer this question and clean up some of the clutter surrounding Schedule C’s Rent or Lease deduction.
Two Lines on Line 20: The Rent or Lease Deduction is composed of two sublines: Line 20a and 20b. Line 20a is entitled Vehicles, Machinery, and Equipment. Line 20b is titled Other Business Property. So precisely what gets reported on Line 20a or Line 20b? Here’s a breakdown of rents that get reported on each line, including a simple way to discern between the two forms of rent:
Line 20a Vehicles, Machinery, and Equipment: The cost of Stuff Rented for Business gets reported on Line 20a. Of course, this statement, like most-everything in tax, carries the caveat that it may be more appropriate to deduct some rents elsewhere (discussed later in this article). That said, rented stuff deducted on line 20a can take many forms, including:
Line 20b: Other Business Property: When you consider what is deductible on Line 20b, think; Space Rented for Business Use (when, of course, not more appropriately deducted elsewhere). Here are a few common forms of rented space:
When Rent is not “Rent”: As pointed out in other Schedule C articles and throughout our Real Estate Agent Tax-Cut Library, many line titles are not black and white. Some expenses that fit a line’s description are best-deducted elsewhere. Line 20, Rent and Lease Deduction, is no exception. So, once again, we must qualify the information provided above. All rents paid are not rental deductions, especially when it comes to items rented for promotion and advertising.
When items are rented to promote a listed home or your agent-skills, deduct the rent as advertising on Line 9 of Schedule C. Some common examples of rent deducted as advertising include:
In addition to advertising, some other rental costs are deducted elsewhere on Schedule C. Other rents are not deducted at all. Here’s a brief list:
1099-MISC Tax Reporting Requirement: An important, and often overlooked, aspect of paying rent is that the payment(s) may require Form 1099-MISC when rent paid to an unincorporated individual or business exceeds $600 during the calendar year. Report rent in Box 1 of Form 1099-MISC (a topic covered extensively in our course, Form 1099-MISC Basics). Many kinds of rent require Form 1099-MISC reporting. Here’s a brief list:
The rules for sending Form 1099-MISC can be as confusing as any other aspect of the US tax code. The penalty for not sending Form(s) 1099 when required, however, makes learning the rules worth the effort. Currently, the penalty for not sending a single 1099-MISC can top $1,060 per 1099. Worse yet, the fine is indexed for inflation! Helping small business owners stay clear of these business-killing fines is why we offer a course on Form 1099-MISC in addition to our Real Estate Agent Comprehensive Tax-Cut Library.
Take Away: Rents get deducted on two lines of Schedule C, Line 20a, and Line 20b. Rent of Vehicle, Machinery, and Equipment (aka Stuff) gets deducted on Line 20a. Rent paid for Other Business Property (aka Space) is deducted on Line 20b. As with many lines on Schedule C, ask yourself “why” why you rented each item. The answer, especially if its to promote your business, may result in the rent’s deduction on a different line. Rent paid during the calendar year may require sending a Form 1099-MISC to the recipient.
Summary and Invite: We hope this article has helped you better understand the deductibility of Rents on Schedule C. If you’d like to learn more about cutting your highest cost: TAXES, check out our Real Estate Agent Tax-Cut Library. The Real Estate Agent Tax-Cut Library includes over eight hours of video broken into twenty-nine searchable volumes and covers every possible deduction a Real Estate Agent can take on their tax return. Our Broker Version will help your entire agency cut their taxes! We also invite you to browse our courses.
All courses and articles are for informational purposes only and do not constitute tax advice. Taxes are complicated - do not act on course information without consulting a professional. Always refer to treasury regulation before making any tax decision. Read the full disclaimer.
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I haven’t practiced in the accounting field in quite some time and wanted a refresher. The Overnight Account course 1099-Misc Basics was very helpful! It was simple to follow along and understand each section. I would highly recommend this course! Staff were quick to answer my question as well. I love that I can review the modules again, if needed, at any time. I will definitely be using them again for more classes.- Tammy, Anchorage, AK, 1099-MISC Basics Course
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