Is A Realtor A Specified Service Business

When it comes to tax planning, knowing whether your business qualifies as a specified service business is crucial. Many real estate professionals often ask, “is a realtor a specified service business?” This question is particularly relevant under the U.S. Tax Code Section 199A, which determines eligibility for the Qualified Business Income (QBI) deduction.

What Is a Specified Service Business?

A specified service business (SSB) is generally any trade or business involving the performance of services in fields like:

  • Health

  • Law

  • Accounting

  • Consulting

  • Athletics

  • Financial services

  • Brokerage services

The main characteristic of an SSB is that the value of the business comes primarily from the reputation or skill of its owners or employees rather than the sale of tangible products.

Is a Realtor a Specified Service Business?

The short answer is: it depends. Real estate agents provide brokerage services, which fall under financial and brokerage services categories. However, the IRS guidance specifies that real estate agents may not always be treated as SSBs if their income is primarily from sales of real property rather than from the personal performance of services.

Key points to consider:

  • Realtors earn commissions from facilitating property sales.

  • Income is largely derived from property transactions, not purely personal skill.

  • Eligibility for QBI deductions may vary depending on whether the business is classified as a specified service business.

Why This Matters

Understanding whether a realtor is a specified service business can have significant tax implications:

  • It determines QBI deduction eligibility.

  • Impacts retirement contributions and tax planning strategies.

  • Helps in structuring your business to optimize tax benefits.

Conclusion

Real estate professionals should carefully evaluate their business classification. Consulting a tax professional ensures proper compliance and maximizes potential deductions. L&Y Tax Advisor can guide realtors through these complexities, helping them optimize tax strategies while staying within legal requirements.

FAQs

Q1: Can all realtors claim the QBI deduction?
 Not necessarily. It depends on whether their business is considered a specified service business and their taxable income level.

Q2: How can a realtor know if they are an SSB?
 Review the IRS Section 199A rules and consult a qualified tax advisor like L&Y Tax Advisor.

Q3: Does selling commercial property affect SSB status?
 Yes, income primarily from property sales rather than services may allow realtors to avoid SSB classification.

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