20 Real Estate Agent Tax Deductions
For real estate agents especially, tax time can be a lot of work. When it’s time to file your taxes, tax deductions are an essential part of lowering your tax liability and having more money left over. Determining how and when to apply tax deductions for real estate agents can be a complex process. In this guide, we help make it simple and go over the top realtor tax deductions and what you need to know about them.
- Making use of tax deductions as a realtor will help you save money on your income tax.
- Tax deductions are a legitimate, legal way to avoid some taxation and save more money.
- Real estate agents are eligible for a wide variety of tax deductions.
- Expenses such as client entertainment, personal wardrobe, and haircuts aren’t deductible.
- Accounting software can be an invaluable way to save time and track deductions year-round.
Table of Contents
- 20 Tax Deductions For Real Estate Agents
- Enhance Your Tax Preparation with FreshBooks
- Frequently Asked Questions
20 Tax Deductions For Real Estate Agents
As a real estate agent, it’s important to learn about the realtor tax write-offs below to ensure you’re able to track and organize your expenses to help save money and make tax time a breeze.
1. Self-Employment Tax Deduction
Assuming you’re a self-employed real estate agent, your income will be subject to the standard self-employment tax of 15.3%. This accounts for Social Security and Medicare taxes, but it can still be a substantial expense. Thankfully, 50% of this cost is tax deductible, meaning you’ll recoup half of it in the end.
2. State and Local Taxes
The state and local tax (SALT) deduction allows taxpayers to deduct some of the tax they pay to state and local governments from their federal returns. The major stipulation is that you need to itemize deductions of your tax (versus taking the standard deduction rate) in order to claim this one. The maximum amount for this deduction is $10,000.
3. Home Office Deduction
As a real estate agent, you likely have a home office as a primary or secondary workspace. If so, you can deduct the costs from your taxes when it’s time to file. You’re allowed to deduct the costs of the entire portion of the home that you use for your work. The current IRS simplified option lets you deduct $5 per square foot of home office space if you work there regularly, up to a maximum of 300 square feet and $1500. You can also figure out the percentage of the home you use exclusively as your home office. With this method, you may be able to deduct part of your mortgage interest, real estate taxes, rent, insurance, and utilities.
4. Office Supplies Deduction
Save your receipts for basic real estate office supplies like paper, pens, and paper clips. Office-related expenses for any items considered usual and necessary by the IRS for your industry can be deducted completely from your taxes.
5. Travel and Transportation
Travel and transportation is one of the most important tax write-offs for real estate agents. Since most agents are constantly driving to and from listing appointments, showings, and open houses, it’s important to track and deduct transportation costs like mileage and fuel for your personal vehicle. If you do any other traveling for work (e.g., conferences or traveling for listings), you can also make a tax deduction for travel costs like flight tickets, hotel expenses, taxi fare, dry cleaning, and tips.
6. Advertising and Marketing Expenses
Realtors often spend a significant amount on advertising and marketing for their real estate business. Fortunately, you can deduct them from your yearly tax return as business expenses. The only requirement for miscellaneous expenses is that they’re considered usual and necessary for your business.
7. Education, Training, Trade Shows, Seminars, and Conventions
Many real estate agents take time throughout the year for personal development and networking events. These are a great way to meet new prospects and network with peers as well as gain higher certification and industry knowledge—plus, they make a great tax deduction. Costs for these events are deductible on your tax return. Registration fees for these events (as well as costs for travel and lodgings) are generally 100% deductible.
8. Legal and Professional Fees
If the IRS considers the use of lawyers and other professionals ‘ordinary and usual’ for your industry, you can deduct their fees from your taxes. Since most real estate agents are known to routinely use the services of these specialized professionals, you can write off their fees when filing your return for your real estate agent business.
9. Professional Memberships
If you’re a member of a networking group, real estate business association, chamber of commerce, or any other kind of professional organization, you can write off your professional membership fees as deductible business expenses when filing your federal tax return.
Are you a real estate agent looking to simplify this year’s tax preparation? Check out the video below to learn how FreshBooks Accounting can help.
10. Health Insurance Premiums
As many real estate agents pay for their own health insurance premiums, it’s good to know you can deduct the cost of your health insurance premiums from your yearly tax return. This is because health insurance premiums are classified as medical expenses, making them essential write-offs on your real estate agent tax deductions checklist.
11. Desk Fees
Do you pay desk fees to your brokerage? If so, you’re able to deduct this cost from your federal income tax for your real estate business. However, you won’t be able to claim this deduction if you’re also claiming a deduction for home office use. Think carefully to determine which of these two tax deductions will be more advantageous for your tax situation.
12. Equipment Costs
Equipment such as computers, tablets, scanners, printers, and even lockboxes are all common business expenses for real estate agents. They can all be deducted from your income tax return, as long as you’re able to prove that they’re usual and necessary for your real estate business according to the IRS. If they are more expensive items, usually above $2,500, they can be deducted as an asset. Otherwise, the deductible expense would be part of your office related expenses.
13. Charitable Donations
With charitable donations, you have the opportunity to give back to your community while lowering your taxes at the same time. If the deductions meet certain criteria, charitable donations are considered deductible if you itemize deductions on your individual tax return. You need to ensure your donation is to a qualifying, tax-exempt charitable organization in order to claim this deduction, which can range from 20% to 60%.
There is also a more advantageous way to deduct charitable donations. If the payment has a direct relationship to your business as a real estate professional and you can reasonably expect a financial return, the donation can be 100% deducted as an ordinary business expense.
14. Business Meals
Business meals with clients are another common expense for real estate agents. The cost of these meals can be deducted up to 50%, which can make a big difference when tax time comes. Be sure to save all of the receipts from restaurants when sitting down with clients and prospects.
15. Bank Fees and Interest
Your bank fees are considered ‘ordinary and necessary’ as a self-employed real estate agent, so you can subtract many of them from your overall tax liability. Eligible deductible business expenses include service fees, overdraft fees, and transfer fees, as well as your monthly account fee. If you have a credit card that you use for your business, interest payments are also a valid deductible expense.
16. Software Costs
If you need specialized software to browse listings, scan documents remotely, or do any other essential part of your job, be sure to deduct the costs from your taxes. Software licenses and software subscriptions can add up, so be sure to factor them in when calculating your deductions for the year.
17. Tax Preparation Fees
If you’re a real estate agent who runs their business as a corporation, you can deduct the costs for your business tax preparation (both for federal and state taxes), ensuring you make the most of your taxes without having to incur extra costs in the long run. The money you spend for filing your business tax return with the help of tax preparation software can be counted as a business expense as well.
18. Phone Bill
As a real estate agent, your phone is an essential part of getting your work done and connecting with clients. If you have a phone and service plan dedicated strictly to work, you’re able to write off the cost as deductible business expenses on your tax return. If you use your personal cell phone to communicate with your clients, you can deduct the percentage of your phone bill that you use for your business.
If you own property that is used for your business, you can write off a portion of it as depreciation on your tax return. This can go for a professional vehicle or an office space, for example. Have a look at the IRS’ Modified Accelerated Cost Recovery System (MACRS) to calculate depreciation for tax deduction purposes.
20. Property Insurance
Though you generally can’t deduct homeowners insurance or your premiums from your taxes, this isn’t always the case if you work from home. You may be able to deduct a percentage of your homeowner’s insurance according to the rate you calculate when deducting your other home office expenses.
Enhance Your Tax Preparation With FreshBooks
While the world of deductions and tax loopholes for realtors can be complex, you don’t have to navigate it alone. FreshBooks accounting software is an incredibly simple way to track, organize, and manage these expenses throughout the tax year. Plus, FreshBooks makes it easy to compile all of your expenses into a neat list of itemized deductions when it comes time to file. This is a great way for busy real estate agents to save precious time and money during tax season.
Ready to give it a shot? Try FreshBooks free today.
Still curious about tax write-offs and how to make them work for you? Learn more about small business tax deductions.
FAQs About Real Estate Agent Tax Deductions
Do you have more questions on deductions and what real estate agents can write off? Here’s everything you need to know.
Do realtors file Schedule C?
For tax purposes, real estate agents are usually considered self-employed, independent contractors. This means that in almost all cases, they will need to file a Schedule C (Profit or Loss From Business) form when filing their income taxes. They can also create a corporation for tax purposes and would then use form 1120 or 1120S to file their business tax return.
Can realtors write off haircuts?
While looking sharp is an important part of becoming a successful real estate agent, haircuts and stylist appointments are considered to be personal hygiene expenses, and are not deductible from your taxable income.
Can realtors write off gas?
Yes, realtors can (and should) write off fuel expenses for their vehicles to offset the burden on their taxable income. Provided your car is used primarily or only for work, you should save your gas station receipts and ensure you’re deducting them when it’s time to file your taxes, as fuel and other actual car expenses or mileage are fully deductible business expenses.
What are some tax deductions for real estate agents?
Tax deductions for real estate agents refer to any business expense a realtor incurs that can be deducted from their taxes later on. This can refer to marketing deductions, home office deductions, health insurance premiums, office supplies expenses, and much more. Understanding and tracking these deductions throughout the year will make it easier to save money on your tax liability when it’s time to file.
How many miles can a realtor deduct on taxes?
Provided you drive the miles for business, there’s no limit to how many miles you can claim as a deduction on your real estate tax return. For the 2023 tax year, the standard mileage deduction rate is set at $0.655 per mile, which can translate to significant savings depending on how much you drive in an average year.
About the author
Sandra Habiger is a Certified Public Accountant with a Bachelor’s Degree in Business Administration from the University of Washington. Sandra’s areas of focus include advising real estate agents, brokers, and investors. She supports small businesses in growing to their first six figures and beyond. Learn more about her work at http://www.sixfiguresaccounting.com/ .