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Understanding Real Estate Accounting & Tax Rules For 2023

By Jamie Richardson | April 27, 2023

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Have you found yourself in a situation where you are not achieving your goals because of the confusion brought by real estate accounting and tax rules? Well, you are not alone and do not need to worry about this anymore because we got you.

You spend a lot of time around different clients and properties every day. This means that you are left with very little time to sort out your accounts, even though it is important. However, handling your accounting and tax rules should not be difficult.

Chances are that you are often finding yourself in problems because you lack the knowledge or support that you need when it comes to accounting and tax rules. So, what do you need to know and do to ensure that you are on the safe side?

What to Track in Your Real Estate Accounting

Whether you are in the real estate business managing properties and making millions of dollars or just handling small properties, you should make sure that you have strong accounting. 

Either way, you will want to see how much money you are making and even pay taxes to the IRS. Even though you can choose to file your annual report with Incfile or other professional companies, they will insist that you keep a clear record of your accounting.

So, do you know what you should track? Here it is.

Expenses and Association Fees

If you are working for a real estate firm, you might have to share a certain percentage of your commission with the firm you are working for. This is supposed to be an expense on your side. 

In addition, you might be required to pay some association or membership fees to organizations as a real estate agent. You are supposed to track this as a deduction.

Commission Income

As a real estate agent, you will generate income from commissions or even the sale of properties for every deal that you close. This is where your income comes from. 

You should, therefore, monitor, track, and report your sources of income. Make sure that these numbers are indicated in the accounting system that you use.

Office Charges

Even though you might not spend a lot of time in your office, you will find yourself using some office supplies, administration tools, and equipment. You might also have charges like maintenance and cleaning, spaces for events, and office rentals.

You should make sure that all office charges, no matter how small or big they might seem, are tracked and indicated in your accounting system.

License and Education Costs

You will need money for your license when running a real estate business. In addition, you will also pay for renewals for this license. Since the industry keeps on changing, you might want to get some certifications to gain an edge over your competitors.

You should track all these as expenses. Make sure that all the costs are added to your accounting system. You will need them when it comes to your taxes.

Transportation, Mileage, and Travel

You will find yourself moving from one place to another to meet clients or even check out properties under your portfolio. 

You might even want to attend real estate events from time to time. This will cost you time and money. Make sure that you have also tracked them as expenses.

Marketing Expenses

Do you expect clients to just come to you even when they know nothing about you or your real estate business? Of course, not. You will need to market your business to remain competitive in the market. 

Some marketing expenses you should track include social media management, website development, newspaper and print adverts, digital and other online adverts, business cards, and sponsorships. These are all your expenses.

So, what about tax rules? What should you know about taxes?

Real Estate Tax Rules

If you manage to follow the guidelines discussed above when it comes to your accounting, you will not have any issues with your taxes. You will even save a lot of money on taxes. Working in the real estate industry, you should know the different tax rules and taxes you are supposed to pay.

Property tax, also referred to as real estate tax, is levied on all the immovable properties that you have. This might include things like buildings, plots, and land, among others. The tax you are supposed to pay will differ depending on the value and size of the properties you are handling.

Other factors that might affect property tax include the property age, type, location, and what the property is used for.

You will also need to understand real estate income taxes. If you have rental income, it will be taxed just like any other income. This is the income that you get from rent, but you should remember to deduct all expenses.

Capital gains tax is also common in the real estate industry. For example, let us assume that you sell a property for more money than you paid when buying it, you will have to pay capital gains tax.

In conclusion, running a real estate business is not as easy as some people think. However, most of the complications you get in this business come if you do not understand real estate accounting and tax rules. Well, as you can see above, you do not have to do a lot of work. Follow these guidelines and you will be on the safe side.

Jamie is a 5-year freelance writer who enjoys real estate. He is currently a Realty Biz News Contributor.
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