are real estate commissions tax deductible

Is Real Estate Commissions Tax Deductible?

When you purchase property or land, the property owner must pay the government property taxes and the real estate commission. Property tax payments are tax deductible.

The real estate commission is charged by the seller of the property. It pays the seller’s administrative expenses. The commission usually ranges from a few dollars per property to several thousand dollars for high-end properties.

You may be entitled to deductions for your real estate commission. A home-based business that produces income as an affiliate of the business is subject to the same rules as the real estate commission. The seller has to include the amount of the commission in the sale price of the property and then calculate his taxable profits by taking the difference between the price paid by the seller for the property and the commission paid by the business to the seller. A non-home-based business that has no fixed address but does not have a specific function and is carried on only for profit is taxable only if it generates a profit. In that case, the business would be taxable as a partnership or a corporation.

A business, which owns its own buildings or land and has its own employees, does not need to pay the real estate commission. A person who is the general contractor of a construction project does not need to pay it, as long as he agrees with the terms. A contractor is considered a public utility. The contractor can elect to pay it if he believes it is more expensive than the alternative of not paying the commission, or if he believes he could get away with not paying it, given the tax rate prevailing at the time.

Some properties, such as condominiums, have the real estate commission tax-deductible. These units are owned by individual members, who agree to share the cost of maintaining the unit. If the owner decides to sell the unit, the association must allow him to deduct the balance amount of the payment the buyer received for the unit. A landlord who lets out rooms in his building to tenants pays the real estate commission and the state tax on the rent.

Real estate commissions are generally tax deductible. However, the amount is reduced greatly by the seller’s obligation to pay tax on the income. It also depends on whether the seller has any other deductions available to him for other sources of income.