With tax season officially upon us, a lot of realtors are looking at their expenses to see, among other things, what can be written off. One of the most widely discussed questions has to do with closing gifts for real estate: Are they tax deductible?
Below are three of the most common questions, answered by industry experts, that should help you better understand this perennial real estate question.
Question #1: Are Closing Gifts Tax Deductible?
Are Gifts to Business Clients Deductible?
According to Stephen Fishman, closing gifts for real estate are tax deductible, but they are “subject to draconian limits.” This means that you can only deduct gifts up to $25 if you are giving it to an individual. In commercial real estate, where gifts are often given to an entire group or company, full deductions can be made up to any “reasonable amount.”
Question #2: Is there any type of closing gift for real estate that is fully deductible?
Gifts can be deductible business expenses, but IRS limits are strict
Stephen Fishman again lends his expertise by clarifying that marketing and promotional items given as gifts are fully deductible. However, in order for a closing gift to qualify, it must be branded. Any gift that doesn’t have visible marketing on it will not be fully deductible.
See related: Little Guide to Corporate Gifting (with best practices for branding gifts)
Question #3: How can I make sure my closing gift expenses are deducted properly?
Are business gifts deductible?
The IRS always recommends that everyone, including real estate agents, keep thorough records and receipts to make sure that deductions are made accurately.
Eva Rosenberg, the publisher of TaxMama.com recommends you break out each component of the gift to accurately record it in the right account, such as gift wrap, shipping, tax, and the gift itself. That way you can maximize your deduction.
See related: 5 Gifts For A Traditional Housewarming
Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.2