Independent real estate agents have several potential tax deductions available to help them lower their taxable income, which could put them in a lower tax bracket and save money.
To find out which tax bracket you fit into before deductions, download our 2019 Federal Income Tax Bracket charts. If you’re in a bracket with a higher tax rate, think about what business expenses you have and determine which might be tax-deductible to reduce your tax rate.
1. Vehicle Mileage
Mileage driven for work can be tax-deductible. Every year, the IRS sets a “standard mileage rate,” which factors in gas, wear and tear, and other expenses associated with driving. For 2019, the mileage rate is 58 cents per mile. To take the deduction, multiply the mileage you put on your car for work by the IRS mileage rate.
Example: If you drove 15,000 miles last year for work, your mileage deduction would be $8,700 (0.58 x 15,000).
To claim the deduction, you need to keep a log of your miles. You can track your mileage by using a paper log and writing down your starting and ending mileage for each trip. Another way is to use a mileage tracking app on your phone. Whichever method you use, it needs to be as accurate as possible so that you can deduct the maximum amount available to you. If you were to be audited, a carefully kept mileage log is what the IRS will want to see.
2. Buying or Leasing a New Car
While you can deduct the depreciation of a newly purchased car, you can deduct nearly your full monthly payment if you lease a car. Many leases have mileage restrictions, which make you pay a fee per mile once you go over a set mileage. The mileage fees you may have to pay, in addition to your monthly lease amount, could be tax-deductible.
3. Home Office Deduction
If you work out of your home, you can deduct expenses related to your office and administrative tasks. To be eligible for the home office tax deduction, you need to have a dedicated workspace at home that you use regularly and exclusively for your real estate business. It also has to be your primary workspace.
You can deduct direct expenses like furniture and equipment. You also can deduct indirect expenses—like a portion of your rent or mortgage payment, utilities, and internet. For the 2019 tax year, the standard home office deduction is $5 per square foot with a maximum of 300 square feet.
Example: You use a corner of your bedroom as your workspace for your real estate business. The area you use measures 250 square feet. To calculate your home office tax deduction, multiply 250 square feet by $5. (250 X $5 = $1,250)
4. Office Rent
You can deduct your full rent or lease payment for your office. This includes any additional charges your landlord passes on to you for cleaning and maintenance of any common areas in the building as well as janitorial services for your office space.
5. Office Supplies
Office supplies like paper, printer ink, pens, and staples are all tax-deductible. In addition, you can deduct the purchase price of your chair and desk. If you purchase decorations for your office or supplies to paint it, those are deductible too.
6. Office Equipment
Similar to office rent and supplies, office equipment is also tax-deductible. This includes computers, copy machines, water coolers, or anything else you purchase for your office. Generally speaking, you must depreciate a portion of the cost over its useful life cycle. If your purchases meet the Section 179 criteria, you could deduct up to $1 million of all property and equipment in the first year as opposed to spreading it out over multiple years.
7. Internet and Phone Costs
Internet access and phone systems are also tax-deductible. Depending on your requirements, these services can be significant expenses for your business.
Example: Voice-over-internet-protocol (VoIP) starts at $32.95 per month or about $400 per year vs landlines, which start around $560 per month or $6,756 per year.