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Originally published Saturday, March 24, 2012 at 8:01 PM Share:           (function(d, s, id) { var js, fjs = d.getElementsByTagName(s)[0]; if (d.getElementById(id)) {return;} js = d.createElement(s); js.id = id; js.src = "//connect.facebook.net/en_US/all.js#appId=279558868722586&xfbml=1"; fjs.parentNode.insertBefore(js, fjs); }(document, 'script', 'facebook-jssdk')); Comments ((0)) E-mail article Print Scott Burns: Income trumps deductions Columnist Scott Burns answers a question from a would-be real-estate agent. By Scott Burns Syndicated columnist Related Comments No comments have been posted to this article Q: I've wanted to be a real-estate agent for more than 20 yearsI would like to open a home office and take every tax deduction possible for it after I start working. Do I set up the office before or after I get my license? I would also like to lease a luxury car for the business. I plan to sell and lease houses for clients, and buy houses for rentals for myselfI would then manage these properties. I would like to start with one house in the $120,000 to $175,000 range because that is all I can afford to invest now. My husband and I are retired and own two housesOne of them is a rental and is paid in full, while our main residence has a $350,000 mortgage at 4.25 percent. Our cars are 3 and 4 years old, also paid in fullWe owe less than $1,000 in credit-card debtI usually pay the bill in full every month. I would rather invest part of our savings this way rather than leaving the money in the bank to earn 50 cents in interest. What do you think of my plan? A: I worry when I get letters from people who think about deductions first and income laterIt's often a sign that they are focused on the wrong thing, having forgotten that generating income is the primary goal of work. If you talk to an active real-estate agent, you'll find that many of them own nice cars so they, and their clients, can be comfortableThey will also tell you that they spend a good portion of their conscious life in that car, so depreciating it and deducting its expenses isn't a "freebie" — it's a necessary cost of doing business. Deducting a home office is also less of a free lunch than it seemsMany people forget they will have to pay taxes on the depreciation they took when they sell the house because their home office doesn't get the free pass in terms of appreciation that their residence does. You can understand this by visiting with your accountant and measuring the deductions you already have for mortgage interest and real-estate taxes against the deductions you might gain for office depreciation and a percentage of your utility bills. Many readers are thinking that owning rental real estate is a better use for their money than the yields being offered by banks and the U.STreasuryA number have written to tell me about turning $150,000 of cash earning nothing into a rental property that nets them 5 percent. When you do that, the expenses you incur in active management to earn that return are deductible as part of your ongoing real-estate businessThe only hitch is that some of the time you spend will be real work, so the true return on your investment will be lower. Questions: scott@scottburns.com --> var ST_permalink=""; if (! 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