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Is food served at an open house tax deductible? Maybe not

Is food served at an open house tax deductible? Maybe not

by DeVore Design, October 9, 2018

The Internal Revenue Service (IRS) is working on guidance that would clarify the deductibility of expenses for client meals under the new tax law, The Wall Street Journal reports.

The IRS is generally expected to issue guidance that says the cost of business meals will be 50 percent deductible, even when those meals are purchased at events defined as entertainment, such as ballgames, providing the cost of the food is documented separately from the cost of the entertainment. Entertainment – which was also 50% deductible under the old tax laws – is specifically not deductible as a business expense.

In real estate, however, there isn’t always a fine line between “entertainment” and “a meal.” The tax law left open the question of whether meals for clients at events that are primarily business-related would still be partially deductible.

This rule clarification is of particular interest to real estate professionals because many provide food at open houses and receptions.

“Unfortunately, this falls under a gray area, and we will not know for sure until the IRS issues guidance,” says Evan Liddiard, senior policy representative for federal taxation at the National Association of Realtors®.

Linda de Marlor, president of Tax-Masters Inc., an accounting firm in Rockville, Md., says she believes that the IRS will decide that the cost of food served at an event intended specifically to provide information to clients will be deductible under the tax law.

“If I hold a seminar, and I serve food at the seminar for the people who come, then that’s education, and I can deduct it,” de Marlor says.

Even if the IRS settles the question of whether business meals are still partially deductible, Realtors should ensure that these expenses are reasonable. Claiming a deduction for excessively high food expenses could cause the cost of the food to be deemed entertainment instead of a meal expense – and the deduction may be disallowed.

Liddiard says NAR will continue to advocate for members and provide further information about this topic following any guidance issued by the IRS. As with any tax-related matter, real estate professionals should speak with a qualified tax adviser before making any decisions regarding the deductibility of meal expenses.

Source: Sam Silverstein, REALTOR® Magazine

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