When it comes to real estate tax deductions, ignorance is not bliss. It can be costly.
The little bit of work that’s required to look up the deductions you qualify for is almost nothing compared to the significant payoff it can yield. The cost-benefit analysis here is a no-brainer.
But it’s usually not the work that prevents agents from saving money each year. More often, it’s a lack of awareness. Agents simply don’t know the many ways they can reduce the amount they owe to the IRS.
So here’s a checklist (with tips!) so you can ensure you’re being smart with your money and paying no more than you should by taking advantage of all the deductions to which you’re legally entitled.
Before we jump in…
Disclaimer: We’re not providing tax advice. The information provided here about real estate agent tax deductions is for general informational purposes only. Tax strategies are highly dependent on individual circumstances. We recommend that you seek the services of a qualified and licensed tax professional for advice about your specific situation.
Start By Tracking All Your Expenses
Because believe it or not, tracking all your expenses (not just the ones you can write off) is an important prerequisite to maximizing your gross commission income.
How can that be true?
Because your total number of expenditures tells you how much income you need to generate for the year to make ends meet. And without that figure, it’s very difficult to establish the other checkpoints: your new prospects, lead generation, and transaction goals for the day, month, and year. These are the foundations of every growth-oriented real estate business plan.
Granted, documentation can be onerous. But it plays an important role as far as business growth is concerned.
If you have the right expense-tracking system in place, you’ll get more of your hard-earned income back at the end of the year. (Plus, your accountant will love you.)
Take the Efficient Route. Use an App.
The most efficient way to track your expenses is by using a mobile app. There are numerous free and low-cost options that allow you to categorize and track your expenses on the go.
Our top two picks are user-friendly and available for both iOS and Android devices.
Why You’ll Love It: It’s visually appealing, intuitive, and makes expense-tracking much more pleasant than clicking through a bunch of complicated spreadsheets.
Pricing: The “Basic” plan is free. If you’re looking to level-up, you can go with either the “Plus” plan ($14.99/year) or the “Premium” plan ($22.99/year).
Why You’ll Love It: It’s sleek, simple and calendar-based, which provides agents with the much-appreciated assistance they need to plan and forecast their income and expenses.
Pricing: The “Pro” plan is $4.99/month (or $39.99/year). The “Pro Unlimited” plan is $6.99/month (or $59.99/year).
The Real Estate Tax Deductions Checklist for Agents
Don’t miss out on ways you can maximize your income this year. Make sure you’re accounting for all of the real estate agent tax deductions on this list.
✅ Marketing and Lead Generation
According to the IRS’s “Publication 535,” “Business expenses are the costs of carrying on a trade or business, and they are usually deductible if the business is operated to make a profit.” To qualify as deductible, these expenses must be “ordinary and necessary.”
As all real estate agents would agree, marketing and lead generation certainly meet all of those criteria.
So as you’re noting all of your potential real estate tax deductions for the year, be sure to consider…
- Your marketing costs (e.g., real estate marketing automation tools, print or online ads, photography, flyers, and signage)
- And any expenses related to real estate lead generation
✅ Licenses & Dues
You may also be eligible to deduct the various ongoing operational expenses that allow you to do what you do as a licensed real estate agent. For example:
- Desk fees
- MLS dues
- NAR and other membership fees
- Association dues
- Brokerage fees
✅ Auto Expenses
There are two ways to track your auto expenses.
Method 1: Track the Following…
- mileage (related to business purposes)
- oil changes
- car washes
- any other vehicle-related purchases/expenses
Method 2: Go By the Standard Mileage Rate
With this method, you don’t have to track all your auto-related expenses. Just your mileage.
The IRS sets three federal mileage rates for tax deductions each year. To give you a rough idea, it’s approximately $0.60 per business-related mile. You can check out this IRS mileage guide to learn all of the details, including the current rate.
As for buying a new car…
According to the IRS, “If you use your car only for business purposes, you may deduct its entire cost of ownership and operation.” But if you use it for personal purposes too, you can only deduct the business-related expenses.
You may get more bang for your buck if you lease a car, according to New Jersey CPA Gail Rosen. “Especially the more expensive it is and the more you use it for business,” she says. Apparently, it’s worth it for her: “It saves me more money.”
But it really depends on the situation. Sometimes it makes more financial sense to buy instead of lease.
Certain restrictions apply to leasing luxury vehicles. And leases typically have a 10,000 to 12,000 mile limit. (Above that, you have to pay around $0.25 per mile).
✅ Your Home Office
Whether you own a home or rent, real estate tax deductions related to your home office can be sizeable. So if you’re an independent, self-employed agent and you work from home at least some of the time, be sure to account for the following:
- homeowner’s (or renter’s) insurance
- a portion of your utilities
- expenses related to the home office (such as office supplies) OR a portion of your rent or mortgage based on the square footage of your workspace (assuming it’s dedicated solely to work)
Real estate agents who work both from their home and from their broker’s office may still qualify for the home office deduction, as long as they meet “the principal place of business test.”
To determine if you pass that test, the IRS will look at the importance of the activities that you perform at both places and the amount of time you spend in each location. Administrative and management activities are what the IRS considers “significant” enough to qualify you for the deduction, including:
- Using any tools and business-related software, including your real estate CRM
- Performing bookkeeping and recordkeeping
- Paying bills connected to your business
- Setting appointments (cold calling, for example!)
- Reviewing real estate-related literature and continuing your education as an agent
As long as these activities are performed routinely at home (and not your broker’s office), they may qualify as tax deductions.
✅ Your Kids Who Work For You
Anything that you would normally hire someone else to do is considered a job by the IRS. And it’s perfectly legal to hire your kids to do it. Even better, it might be considered to be a tax deduction for real estate agents.
“By paying their children reasonable wages to do legitimate work, business owners can convert their high-taxed income into tax-free or low-taxed income,” says Peter Jason Riley of Riley & Associates in Newburyport, MA.
But heads up… this can get a little complicated.
- You’ll need to obtain an Employer Identification Number from the IRS so you can have the legal status of an employer.
- There are limits to the kinds of jobs your children can perform. And be mindful of the Fair Labor Standards Act.
- The amount you pay your child needs to be reasonable, according to the work they perform.
- Some states offer stricter guidelines than others.
The bottom line is: Filing real estate agent taxes can be extremely complex. Check with an attorney or with your state’s department of labor for details. Don’t try to figure it out on your own.
✅ Freelancers & Contractors
Many agents outsource some of their business tasks to freelancers and contractors, such as writers, marketing professionals, photographers, graphic artists, and web designers. The fees you pay these professionals are tax deductible.
Keep in mind: you are legally required to report their earnings to the IRS (if they total $600 or more). If you don’t, you may incur penalties.
To report what you pay out, file a 1099. (Copy A goes to the IRS.) That way, not only will you have fulfilled your legal obligation, but you’ll also have proof of these expenses for your accountant.
✅ Gifts for Clients
Giving closing gifts can be a great way to create and nurture strong, long-lasting relationships with your clients. And as an added perk, they may also be tax deductible.
“If you give gifts in the course of your trade or business,” says the IRS’s “Publication 463,” “you may be able to deduct all or part of the cost.”
But keep in mind, it’s limited to $25 per person. So you may not want to shop for anything too extravagant if you want it to make it onto your real estate tax deductions list.