Sat, Jul 04, 2009
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Deducting Real Estate Commission as expense? |
psplumley
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Posted: 18:22 on 01-24-2003
I have a buyers agent agreement with my real estate agent. On a recent purchase of an investment property, I paid my real estate agent 3% as commission for finding the property. However, I paid the agent after closing on the house with a seperate check. My question is - can I deduct the commission I paid as an expense? One of my reference books (p. 126, Getting Started in real estate investing by Thomsett and Thomsett) states that "... if you use a buyers agent, commissions paid to the buyer's agent are deductable". However, my accountant can not verify this and says that it probably would not be allowed by the IRS.
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DaveT
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Pawleys Island, SC
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Posted: 00:53 on 01-25-2003
Your firmest ground with the IRS is to let acquisition costs increase your cost basis.
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psplumley
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Posted: 14:40 on 01-25-2003
Yes, if you want to be conservative, I guess you would not try to count your commission payment to a sellers agent as an expense. I would like to know if it has ever been tested in tax court. Hopefully, there is a tax expert out their that could help here.
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DaveT
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Posted: 23:22 on 01-25-2003
Depends upon how you plan to use the property, or how you plan to dispose of it.
My answer fits all cases. Tell us what you will do with the property, and I may be able to tailor my answer to your question.
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psplumley
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Posted: 13:38 on 01-26-2003
Rental property. I plan to hold the property for several years.
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DaveT
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Posted: 18:15 on 01-26-2003
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| Rental property. I plan to hold the property for several years. |
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psplumley,
For rental property reported on Schedule E of your tax return, you have your choice on how to deal with the commission you paid your buyers agent.
1. Add the commission to your cost basis and establish a higher depreciation basis. Recover the commission by taking an annual depreciation expense.
2. On the miscellaneous expenses section of your Schedule E (line 18, Other), enter Acquisition Cost on one of the blank lines and enter your commission expense here.
Either way will expense the commission.
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