Are Home-Staging Costs Tax Deductible?
I recently published a great article on the Times Herald Record (I even got a full page – woo-hoo!). I’d like to share with you the whole article, but I have to warn you, it looks great in print.
For years I have been telling clients, Realtors and attendees of my staging classes that staging is tax deductible. No one really could explain how, but there is an IRS Publication #523 on staging. This column will explain what it all means, thanks to Rob Unger, CPA, CFE of Judelson, Giordano & Siegel, CPA, P.C.
According to Unger, “Home sellers can benefit from home staging, as the fees for staging services can be considered as advertising costs according to IRS guidelines. Since a home stager prepares your house for potential homebuyers, the IRS considers the service as an advertising expense, as long as the home stager has been hired for the sole purpose of selling your home. The costs of staging are subtracted from the proceeds of the sale of the home and decrease the total realized profit. In summary, the IRS’ position is that staging costs are a legitimate selling expense for both primary and secondary homes and are therefore tax deductible. However, it is important to note that if a house is staged and then taken off the market, the staging expenses are not tax deductible.”
Questions from the stager (That’s me!)
Since the word “staging” confuses people, I asked if the following is tax deductible: fresh white towels, new shower curtain, home repairs, paint, new carpeting, furniture or furnishings rental or purchases. Staging clients usually buy and sometimes I rent items to them.
If the home goes off the market for a few months then goes back on, are they still allowed to claim it as a tax deduction? For instance: Sellers did not want to put in new carpeting, no offers, the home goes off the market for the winter, new carpeting goes in, home goes back on the market and sells.
The CPA’s clarification
From CPA Rob Unger: “With regard to the timeline, the costs of staging are only deductible if the home is for sale and actively on the market. If the home is on the market then taken off without a sale, the cost of staging is not deductible.
“The IRS does not allow you to deduct expenses for repairs, maintenance and upkeep on your main home, so these expenses cannot be subtracted from the sale of your home. Fresh paint, new carpet, furniture and home decorations are not tax-deductible expenses, even if a home stager recommends them.
“In your example of the home being on the market, coming off, then going back on and selling, they are considered separate transactions. If there are staging costs associated with the first time it is on the market and then comes off with no sale, no deductions are allowed for the staging costs. Any staging costs associated with the property going back on the market and selling are deductible as it relates to that transaction.
“Staging is typically what happens after the homeowner has cleaned, painted and made minor repairs. It’s the cost of the stager’s services in dressing up the home to get it ready for sale.
“In your example, where the homeowner is buying the fresh white towels and furnishings, these are not tax deductible, as after the sale is completed, the homeowner is most likely going to take these items with them. If these are part of your services and you rent these items to them, and it is included in your invoice for your services, and they are retained by you after the home staging is completed, then they will be tax deductible as staging expenses.
“I think a literal explanation is that the tax-deductible part is what is on your invoice as the stager. Items that the homeowner buys and intends to keep that are used in the staging process are not deductible, as they are being used for staging and then also for personal use after the staging making them non-deductible. Items they rent for the staging process and then return after the home sells are deductible as part of the staging, as they do not use them for any personal use, they are used strictly for the staging process.”
So, to sum it up: Stage the home properly from the beginning. Price it right. Get it sold.
A real estate broker’s question
Ron Garafalo, real estate broker and sales manager of Better Homes and Garden Rand Realty in Goshen, asked questions at a broker’s luncheon at a house I staged.
Garafalo asks, “At Realtor Diane Blanton’s broker’s luncheon, you mentioned that staging is tax deductible to the seller. My main question is, how is it deductible? Is it deductible off their income where if they made $50,000 as income, and paid $1,000 for staging, does their income drop to $49,000? Or, if they pay $1,000 for staging, is it not deductible from their income, but instead is deductible from their home purchase price/repairs in regards to their gain on their house sale? Does it come into play much, as most homeowners do not pay a tax on their sale?”
A CPA’s answer
“I think I will try to answer Ron’s questions first by using an example of what his thinking is. If a person has income of $50,000, let’s say from W-2 earnings, and paid $1,000 for staging costs, are they taxed on $49,000? The answer is no, they are taxed on the $50,000 of W-2 earnings, as there is no direct offset or itemized deduction for staging costs. The staging costs must be related to the sale of a home and are deducted as selling expenses. Ron also makes the point that it does not come into play much as in the sale of a principal residence; if certain conditions are met, a single taxpayer can exclude up to $250,000 of gain, and a joint filer can exclude up to $500,000 of gain,” says Unger.
Stage the home properly from the beginning. Price it right. Get it sold.
According to Unger, “Home sellers can benefit from home staging, as the fees for staging services can be considered as advertising costs, according to IRS guidelines. Since a home stager prepares your house for potential homebuyers, the IRS considers the service as an advertising expense, as long as the home stager has been hired for the sole purpose of selling your home. The costs of staging are subtracted from the proceeds of the sale of the home and decrease the total realized profit. In summary, the IRS’ position is that staging costs are a legitimate selling expense for both primary and secondary homes and are therefore tax deductible. However, it is important to note that if a house is staged and then taken off the market, the staging expenses are not tax deductible.”