Keep more of your real estate commission income by learning about real estate agent tax deductions. Real estate agent tax deductions are expenses that agents can subtract from their taxable income to reduce the amount of tax they owe.
Keep reading to learn common deductible business expenses, how to keep track of those expenses, and tips for hiring a tax professional. Remember – we aren’t tax professionals. You must verify this information with a tax advisor to ensure it applies to your location and situation.
Tax deductions allow real estate agents to subtract eligible business-related expenses from their earnings, ultimately lowering the amount of tax they owe. To keep most of your income in your pocket, you must understand how tax deductions work and what expenses are eligible. The most difficult part for many people is being disciplined enough to keep track of their expenses throughout the year.
Here's an overview of IRS guidelines for real estate professionals.
Let’s start with the most common real estate business expenses that can be deducted: commission and fees, business meals and entertainment, and technology.
As a real estate agent, you earn commissions for successful property sales. However, if you pay a sub-commission to another agent or employee for assisting with a sale, that sub-commission is fully deductible as a business expense.
Whether you're working under a national franchise or with an independent broker, your desk fees are also deductible. However, it's important to note that you cannot claim the home office deduction if you deduct brokerage desk fees. Talk with your tax advisor to see what deduction method is most advantageous to you.
You can deduct meals as a business expense in two scenarios: when traveling for business and dining with clients or other professionals to conduct business or generate referrals.
Yes, client gifts can be deductible for real estate agents, but there are specific rules to follow. The deductible amount is limited to $25 per client per year.
Any technology or software essential for running your business is fully deductible, including lead-generation subscription services and customer relationship management (CRM) software. Tools that automatically track your expenses and mileage can also be deducted.
As we mentioned earlier, you may not be eligible for a home office deduction if you deduct your desk fees. Talk with a qualified tax preparer to learn more. Here’s what you need to know about qualifying for a home office deduction and how you calculate it.
To qualify for a home office deduction, real estate agents must use a portion of their home exclusively and regularly as their principal place of business—where they meet with clients or conduct business activities. The space must be clearly defined and dedicated solely to business use. A space used for personal and business does not qualify as a home office.
There are two methods to calculate the home office deduction. The simplified method allows a deduction of $5 per square foot of the office, up to 300 square feet. The regular method requires more detailed calculations involving the percentage of your home used for business and applying that percentage to eligible home expenses like mortgage interest, utilities, and maintenance costs.
You’ll drive a lot as a real estate agent. Between showings, listing presentations, and more, miles can add up quickly for real estate agents. These miles are deductible, provided they aren't part of your regular commute to the real estate brokerage.
The standard business mileage deduction for the 2024 tax year is $0.67 per mile. Many real estate agents use apps to keep track of how many miles they drive in the course of their business.
The actual expense method allows real estate agents to deduct the real costs incurred for business-related travel, including gas, repairs, insurance, and depreciation, rather than using the standard mileage rate. To use this method, agents must maintain detailed records and receipts of all vehicle expenses. This approach can benefit those with high car payments or significant vehicle-related costs.
Travel expenses incurred for business purposes, such as visiting properties, attending client meetings, or other real estate-related activities, are tax deductible for real estate agents. This includes costs for transportation, lodging, and meals while traveling away from home for business.
Real estate agents must be excellent marketers. Not only do they need to market their client’s homes for sale, but they also need to market their own businesses. It’s important to note that both types of marketing and advertising expenses are tax deductible.
Expenses incurred in creating and maintaining your website are tax deductible. Additionally, paid online ads, staging expenses, and professional real estate photography may be tax deductible.
Signage, business cards, flyers, and mailings used to promote your business or your listings are tax deductible.
Schedule a seminar for new home buyers or buy wine and cheese for your next open house. Those expenses may be tax deductible.
Real estate agents can’t claim expenses incurred for “study that will prepare you to change careers” or “for study that is presumed to be a basic requirement for working in your job.” So, this means you can’t use your pre-licensing education or test-prep expenses as a tax-deductible business expense. However, you can deduct a few educational expenses and related fees.
Registration fees for seminars, workshops, and courses directly related to your work and count toward your continuing education credits may be tax deductible.
Costs incurred for education and training that improve a real estate agent’s skills and knowledge are fully deductible on Schedule C. These courses must be relevant to the real estate industry.
Membership dues to real estate-related organizations are also tax deductible.
Even relatively small expenses like paperclips and envelopes can add up over time. Here are some of the deductible office supplies for real estate agents.
Office supplies are deductible business expenses and should be claimed separately from the home office deduction. This includes paper, envelopes, ink, staples, shredders, desktop printers, postage, and other related items. You can also deduct other office-related costs like stationery, photocopies, and consumables essential for your business.
Furniture, copiers, and computers are either fully deductible or depreciated over several years.
Yes, business cell phone expenses are deductible.
Specialized insurance coverage for real estate agents may be required in some states. While you may not be excited to have another business expense, that expense may be tax deductible.
This type of insurance covers claims related to mistakes or negligence in performing professional duties. It protects against legal claims arising from errors or omissions during transactions, and the premiums may be tax deductible.
This insurance helps protect against claims of bodily injury or property damage that could occur during business operations. Although not always legally required, it is beneficial for managing risks – and the premiums can be deducted.
Most real estate agents must pay for their own health insurance and healthcare costs, some of which may be deductible.
Health insurance premiums paid for you and your family may be deductible, provided neither you nor your spouse are eligible for an employer-sponsored health plan.
You may be able to claim some health expenses if they exceed a certain percentage of your adjustable gross income. Talk with a tax expert to learn more about this deduction.
Your tax preparer doesn’t want to sort through a shoebox full of receipts. Nor would an auditor from the IRS. Keep your financial records organized – just as you do with your client’s information.
Here are a few reasons why you must keep complete and accurate financial records:
Utilizing specialized tools and software can streamline record-keeping for real estate agents. Tools like QuickBooks or real estate-specific platforms like Dotloop can help track expenses, manage invoices, and organize financial records.
Tax regulations change, so it’s essential to have a professional advisor to help you with your business taxes. Here are some tips for finding the right professional.
As a new real estate agent in Arizona, it’s critical that you have the right people in your corner. Find a trusted tax advisor to answer questions about real estate agent tax deductions, and turn to the Arizona School of Real Estate & Business for all your real estate courses. ASREB’s teachers are experienced and can answer your questions about record keeping and writing off the wine you served at your last open house. But, more importantly, ASREB will help you become licensed – and stay licensed. Our pass rates are the best in the state! Contact an enrollment advisor today to learn more!
