18 Real Estate Agent Tax Deductions & Tips to Save Money
This article is part of a larger series on How to Become a Real Estate Agent.
Real estate tax deductions reduce your annual tax bill, which helps maximize profits. Since most agents operate as independent contractors, any commissions received do not have taxes withheld. Aside from this, you must document common business expenses like mileage, education, meals, office supplies, phone bills, marketing, and insurance to receive deductions. We’ve identified 18 real estate agent tax deductions that you should take advantage of to save money and increase your bottom line.
Organize your expenses with an accounting application like QuickBooks, or keep track of your finances through a simple spreadsheet. Download our free realtor tax deduction tracking sheet below to get started quickly on your own.
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Quick Tip:
QuickBooks is cloud-based accounting software designed for small businesses that require advanced features, such as inventory management and profit and loss (P&L) tracking by class, location, and project. QuickBooks Online is available in four plans, ranging in price from $30 to $200 a month, depending on the number of users and features desired.
For additional tips for saving money on your tax, visit 10 Essential Tax Savings Tips for Small Business Owners.
1. License Expenses
All fees for keeping your real estate license valid are considered necessary common realtor business expenses. These real estate costs are typically imposed by government or professional agencies, allowing you to continue to perform your duties. These realtor tax deductions apply to your license renewals and include costs for business licenses, any application fees associated with license renewal, renewal fees for LLCs, or any business licensing costs to practice business in a different jurisdiction.
The license deduction should be itemized under the Taxes and Licenses section of your Schedule C form when completing your taxes. Most license expenses are paid on a set schedule after you become an agent, so once you get your license, you should keep a running real estate agent expenses spreadsheet of when and what fees are due. Include the total when calculating your real estate agent tax deductions.
2. Gifts
The Internal Revenue Service (IRS) caps business gifts at $25 per person per year. Agents can obviously give gifts of higher value, but they’ll have to cap their tax deduction at $25. Gifts can include closing gifts, holiday gift baskets, or referral gifts. Depending on the purpose of the gift, agents may be able to deduct more. For example, a gift containing an agent’s branding information could be considered a marketing expense instead.
Custom gifts are an effective way to nurture relationships with your past and current clients. EvaBot automates the gift-giving process using artificial intelligence to speak with individual clients to discover their interests. Then, it will send them a custom gift that appeals to them and is within your price range.
3. Meals
Developing relationships with your clients and business network is part of growing your business as a real estate agent. Those associated with your network can be suppliers, agents, advisers, partners, assistants, and even your employees.
Usually, agents are able to deduct 50% of their meal expenses. However, for 2021 and 2022 only, the Consolidated Appropriations Act of 2020 increased the deduction to 100% of meals provided by restaurants. This benefit was created to help restaurants after the 2020 COVID-19 pandemic and will revert to 50% in 2023.
To help keep track of meals over the year, agents should only charge these expenses on a single credit card dedicated to business expenses. That way, it will be easier to differentiate business meals from personal meals. Additionally, agents can export their annual charges from credit card websites to provide to your accountant or tax preparer.
Read our Can I Claim the Meals & Entertainment Deduction? article for more information about meals and entertainment deduction. This article will help you better understand and identify which business-related meals and entertainment activities you can claim for deduction to lower your tax liability.
4. Marketing & Advertising Expenses
Real estate agents rely heavily on marketing and advertising to promote their businesses. So, what can I write off as a realtor? These expenses include business cards, print materials, radio or magazine advertisements, sponsorships, and property listings. As long as the marketing and advertising expenses are common and necessary, they are all tax-deductible.
Agents should keep detailed receipts of each marketing expense paid throughout the year. All costs should accompany a physical receipt or invoice saved in a folder for easy access at the end of the year. These are documented on your Schedule C form under box 8.
Pro tip: Most businesses provide emailed receipts rather than paper receipts. Keep a separate folder in your email or Google Drive account to save these receipts rather than having to organize and file paper copies. If you receive paper receipts, take a picture and save them instead.
Market Leader’s real estate marketing automation
If you haven’t started thinking about your marketing expenses and need to budget them into your real estate business, read through our article Real Estate Marketing Plan Template & Strategy Guide. It will provide you with a template as well as tools and software to get your real estate marketing started. Using a provider like Market Leader can help you create print and digital marketing materials, set up marketing automation, and organize your contacts with a comprehensive client relationship management (CRM) system.
5. Automobile Deductions
Can real estate agents write off a car purchase or lease? Yes, agents have two options when claiming a vehicle as a tax deduction if they use a car for real estate purposes to look at properties, client showings, running between closings, etc. Select a standard mileage or actual expenses when claiming a real estate agent car for a tax deduction and input to Schedule C, line 9. Calculations for both deductions are:
- Standard mileage deduction: In the first half of 2022, the standard mileage rate was 58.5 cents per mile driven for business use, the second half being 62.5 cents. For 2023, the standard mileage rate is 65.5 cents per mile driven for business use. If an agent drove 10,000 miles, they could deduct $5,850 for their vehicle ($0.585 x 10,000).
You can also include vehicle registration and taxes, loan interest, car washes, and parking fees to the standard deduction. Agents can utilize applications like MileIQ to help keep track of business mileage expenses. Note that standard mileage must be selected for the first year of the vehicle’s use and cannot be switched to standard after the vehicle has been used.
- Actual expenses: This is a more complex way to calculate costs associated with vehicle maintenance. Agents will have to sum up the costs involved in vehicle maintenance, gas, parking, car washes, interest for a vehicle loan, tires, and titles.
Hurdlr app transaction dashboard
Use a mileage tracker app like TripLog or Hurdlr to keep track of your vehicle expenses and mileage. Hurdlr is a great option for self-employed individuals like real estate professionals to automate their tracking. For $10 per month, agents will get access to unlimited auto-mileage tracking, real-time tax calculation, and auto-expenses tracking. Hurdlr also has a free plan with limited features and basic reports.
Review our article 5 Best Mileage Tracker Apps for Small Businesses for more details about Hurdlr and other mileage tracking apps for your business.
6. Office Supplies & Business Equipment
If real estate agents use office supplies as part of their business, they can write them off on Schedule C, box 18. In addition to pens, paper, ink, and folders, agents can include furniture like office chairs, desks, or bookshelves. To help keep track of office supplies expenses, agents can use an Amazon business account dedicated to business-related supplies. Personal items should be purchased under a separate personal account.
Similar to the office supplies deduction, business equipment like cell phones, computers, printers, and cameras can be fully deductible in the year purchased by completing a section 179 election. The caveat to the equipment write-off is you’ll need to use it for more than 50% of your real estate business. For example, if you purchase a printer and find yourself only using it for personal printing instead of real estate paperwork, then you cannot count it as a write-off.
If you purchase expensive equipment like a drone or camera, you may need to depreciate the item over a few years. Consult with your tax accountant to see which method is more beneficial.
7. Education & Training
Participating in continuing education (CE), professional development, and certifications and designations allows agents to stay competitive. Real estate agents can deduct education fees, costs for materials, and travel costs associated with completing education or training. This will be documented on the Schedule C form under box 27a.
Since continuing education is also a requirement for license renewal, the costs of CE classes taken to apply for the renewal are also tax-deductible. However, any education expense that helps you in a new business industry is not tax-deductible. It has to be related to your current business.
McKissock Learning real estate course chapters
There are many real estate school options for in-person and online real estate education to satisfy CE hours and get professional development. McKissock Learning offers required coursework in all 50 states in full packages or customizable individual classes. Pick and choose the courses that align with your business goals to improve your knowledge and increase your business.
8. Insurance
Real estate agents must carry various insurance policies to protect their businesses. Some states, like Rhode Island and Colorado, require agents to get errors and omissions (E&O) insurance to have a valid real estate license. Insurance expenses like general business insurance and E&O are fully deductible. You can write E&O insurance under Schedule C, box 15.
Plus, premiums spent for health insurance for you and your family may be deductible if you and your spouse are not eligible for an employer-sponsored health plan. This includes medical insurance, dental coverage, and long-term care. This will be documented under line 29 of Schedule 1 of Form 1040.
If agents have a brokerage, then they are most likely required to maintain workers’ compensation insurance for their team, which is also deductible. Agents will have to maintain a policy with an insurance company. Therefore, they are able to track their policy expenses with any payments to your insurance vendor.
Read more about insurance deductions in Pre-tax vs Post-tax Deductions: What Employers Should Know. Learning more about these concepts can help you understand how to effectively manage payroll.
9. Phone & Internet Bills
Conducting real estate business will require access to a telephone and the internet. These monthly charges are modest but can add up at the end of the year. If agents or brokers have an office with internet and a landline used for receiving incoming and outgoing business calls, then they can deduct the annual cost of the internet bill and landline on the tax form at Schedule C, box 27a (Phone bill) and Schedule C, box 25 (Internet).
Example utility bill (Source: Dreamstime.com)
For cell phones, agents can use a percentage of their monthly bill used for business as one of the tax write-offs for real estate agents. You can track the number of calls through your cell phone provider bills and take a percentage of the monthly cost. For example, if your monthly bill is $100, and you made 100 calls in a month and 95 of them were for business. Then, you can use $95 (.95 x $100) as your monthly cell phone bill write-off.
You can also deduct the cost of a new cell phone if you purchased a new one for business. Some agents have two cell phones to separate their business and personal and keep these expenses straightforward at the end of the year.
10. Travel
If agents find themselves traveling for business to an event or conference, most travel expenses will be fully tax-deductible. These expenses include airfare and lodging. Travel meals are 50% deductible. However, if an agent chooses to extend their stay at a destination for personal reasons, then traveling to and from is entirely non-deductible. This will be documented on the tax form on Schedule C, box 24a.
Zoho Expense app dashboard
To help keep track of travel and daily expenses, utilize an expense tracker like Zoho Expense or QuickBooks Online. For transportation during travel with rideshare apps like Uber, agents can set up a business profile to keep track of business travel and link those charges to a business credit card.
For more business expense trackers that help organize your money, check out our article 6 Best Business Expense Tracker Apps.
11. Legal & Professional Services
Professional services for your real estate business are 100% tax-deductible. This can include attorney fees, CPA, bookkeeper, consultants, and third-party marketing and advertising vendors or individuals. You may also calculate the deductible legal expenses for unreimbursed costs paid on your client’s behalf relating to their property, like title searches or attorney fees for closing. You can put these deductions in Schedule C, box 17.
Sometimes attorneys in your network can help you with personal and business matters. To make sure you’re complying with IRS regulations, one tip to keep expenses separate is to have your attorney bill you separately for personal and business matters.
12. Commissions Paid
A real estate agent’s salary typically comprises commission payments for deals closed. If agents pay other agents (like a buyer’s agent or referring agent) a commission from their own gross commissions, then you can deduct the amount paid on Schedule C, box 10 of the tax form. For example, Agent A has secured a new listing and agrees to pay Agent B 30% of Agent A’s gross commission for bringing in buyers. That 30% total paid to Agent B is the amount you would use as your deduction.
Make sure to keep track of these expenses closely because the costs can add up quickly depending on the number of deals you close, and you want to make sure you’re paying out the right commission splits to all parties involved.
13. Association Dues
To maintain a valid real estate license, agents must pay dues to associations or organizations on an annual basis. Dues may be required to be paid to state and local real estate boards, professional organizations, or trade association fees. These dues are deductible business expenses, even if you are a part-time agent. However, if portions of your dues support any political lobbying, then those portions are not going to be deductible.
Since these dues are usually paid annually, agents can keep the deductions recurring yearly unless there are any fee changes or an increased number of associations. This can be documented in Schedule C, box 27a of the tax form. If agents use accounting software like QuickBooks, these expenses should be coded as “dues.”
14. Software Fees
Running a successful real estate business requires multiple software tools to manage different aspects of your business. The expenses in this category can make up a large portion of your annual expenses and are fully deductible in the tax form at Schedule C, box 18.
Here are some software examples that could help with various tasks, from organization to lead generation:
- Client relationship management (CRM) software
- Lead generation companies
- Document and transaction management
- Database software
- Real estate marketing companies
- Website builders
- Social media marketing companies
To keep track of your technology stack, agents should document yearly and monthly expenses as well as any additional add-ons for quick reference.
15. Retirement Plan Contribution
Agents are independent contractors. Thus, they are usually not offered a company retirement plan to participate in. If agents choose to contribute to a retirement plan each year, they should consider maxing out the contribution to see maximum tax savings. A few plans agents can choose from:
- Self-employment Pension (SEP) IRA: Agents can contribute the lesser of 25% of compensation or $61,000 for 2022. Read about Keogh plans and other SEP IRA plans.
- Traditional IRAs: The maximum you can contribute to your IRA is $6,000 if you’re younger than age 50, or you can add an extra $1,000 per year after 50 to max out the annual contribution at $7,000.
- Solo 401(k): Must be a business with no employees. The maximum contribution limit is $61,000 in 2022, and you can add an additional $6,500 annually if you are 50 or older. Take a look at the 6 Best Solo 401(k) Providers for 2022 to choose the best option for you.
The tax benefits of contributing to a retirement plan are to reduce your overall taxable income, which may lower your tax bracket to pay less in taxes. To track retirement savings and investment choices, agents can use a personal finance app like Personal Capital to track annual retirement contributions.
16. Employee Payroll & Payroll Taxes
It is not uncommon for agents to hire administrative support or for brokers to hire employees when starting a brokerage. Employees can contribute to efficiency and help increase your bottom line. All hourly and salary employee wages and employer payroll taxes like Federal Insurance Contributions Act (FICA) and State Unemployment Taxes are deductible and should be written at line 10 of Schedule C in the tax form. Wages may be classified as salaries, bonuses, commissions, and other taxable compensation payments.
To avoid any IRS mistakes, make sure not to misclassify your employees as independent contractors. Doing so can create years of back taxes.
17. Home Office
A home office can be one of the most substantial realtor tax write-offs. Real estate professionals who use a part of their home for business-related activity are allowed to write off rent, utilities, taxes, repairs, and maintenance per Schedule C instructions on line 30.
There are two ways of calculating the tax deduction:
- Simple method: Multiply the square footage of the room by $5, with a maximum amount of $1,500. If you use a 200-square-foot room exclusively for business purposes, you can multiply 200 by $5 to give you a total of $1,000 you can deduct for your home office.
- Complex method: Itemize all costs related to your home and multiply that by percentage of the house used for business purposes. Costs can include mortgage or rent, insurance, repairs, or utilities. For example, if the total cost for your home is $4,000 and you use 15% of your home for business, then you can deduct $600 for your home office.
If you ever get audited by the IRS, it’s important to keep detailed receipts of all expenses related to the home if you are taking this deduction. It’s also best practice to take a photo of the space so you can have a visual idea of the square footage.
18. Desk Fees
Some brokerages will charge realtors a desk fee, which varies by agency. However, they are typically monthly flat fees to work in the broker’s office or under their broker license. Brokers charge this fee to cover expenses related to training, resources, and tools provided to the agent.
It also can cover insurance, legal costs, office supplies, or leads provided. Such expenses are usually tax-deductible if an agent pays for the costs out of pocket, but since it’s grouped into a desk fee, agents can total up annual costs and use that as one of their realtor tax deductions. It should be documented in Schedule C, box 10 of the tax form. Brokerages should provide a desk fee agreement, which agents should keep a copy of for their records.
Bottom Line
Save thousands of dollars by lowering your taxable income with tax deductions for real estate agents. To keep the required documentation of such expenses, agents should consider implementing accounting software in their day-to-day practice to track each expense. Keep receipts of expenses for at least three years in the event the IRS wants to perform an audit. The tax law can be quite complicated and ever-changing, so agents can consult a certified public accountant (CPA) to assist with navigating tax deductions.
