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Top 20 Realtor Tax Deductions

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By Eileen Maki on April 24, 2020

Eileen has been an accountant for more than 25 years and is a certified Intuit QuickBooks ProAdvisor. She shares her expertise throughout accounting and accounting software content on Fit Small Business.

 

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.

8. Cellphones and Tablets

You can deduct the cost of cellphones and tablets when used for business purposes, including both monthly service charges and the purchase price or depreciation of your devices. You should have a separate phone and/or tablet just for work. This will make it easy to determine which costs and fees are associated with your business. If you don’t have separate devices, you will need to keep a log of the time you use your personal devices for work and can only deduct that amount.

9. Real Estate Software and Apps

As a real estate agent, you may need specialized software or applications to keep yourself and your client information organized. If you’re an independent agent, you might be paying for a customer relationship management (CRM) tool, transaction management software, real estate specific accounting software, open house software, comparative market analysis (CMA) software, landing pages, websites, and more. Your monthly software bill can exceed $300 easily.

Make sure to keep careful records of your monthly expenses. Most of the tools you use for your business can be deducted from your taxes. In addition to the software, the cost of purchasing mobile devices can often be deducted as well.

10. Marketing and Advertising Costs

All of your marketing and advertising costs are tax-deductible. Whether you’re buying something as cheap as virtual staging, postcards, or spending thousands on billboard advertising, you can expect to deduct roughly half that expense on your taxes.

Signage is one of the most commonly used marketing and advertising methods used by real estate agents. Make sure you keep receipts and details of where your signs were used and for what purpose. Signage is a valid deduction on your taxes.

11. Desk and Franchise Fees

Depending on which agency you work for, desk fees can add up. Well-known and high-split franchises can charge desk fees of $150 to $400 per month. However, these fees may be worth the added advertising and word-of-mouth reputation the agency has. In addition, those desk fees are tax-deductible.

Franchise fees paid to national franchises are also tax-deductible. Depending on which franchise you’re working with, these fees can also be significant. As with desk fees, franchise fees often pay for marketing and advertising the franchise does as a whole. Well-known agencies are generally the ones potential clients think of first. Because franchise fees are directly related to your business, they are fully tax-deductible.

12. Annual Dues and Membership Fees

Joining professional organizations can keep you up-to-date on industry news and information. These memberships and subscriptions often come with periodicals and online articles related to your industry. These fees are tax-deductible.

That means your Real Estate Board of New York dues or dues for designations or certifications like accredited buyer’s representative, short sale and foreclosure resource, or seller representative specialist are tax-deductible. The only drawback is that the portion of your dues that goes to political lobbying is not deductible. Check the documentation that comes with your membership to determine what amount, if any, of your membership fees is given to political lobbying.

13. Conventions, Conferences, and Training

If you travel to attend a convention, conference, or training event for business, you can deduct travel, lodging, and meal expenses. You must keep a record of the trip and receipts of all your expenses. A trip itinerary or the conference documentation can serve as proof of your business-related trip. You can even deduct a portion of your meals while you’re away for business, but this deduction is limited to 50% of the actual meal cost.

14. Client Gifts

When purchasing a gift for a client, you can deduct up to $25 for each gift you purchase. While you should be spending far more than $25 for a good closing gift, being able to write off a portion of it is still better than nothing. Client gifts can be a gift card, gift basket, or any other item you would like to give. Keeping your clients happy is always a good idea.

15. Continuing Education

Your continuing education (CE) courses are also deductible. CE courses are generally pretty inexpensive, but every little bit helps. It can be challenging to decide which CE courses are best for you and which providers are qualified to give you valid CE credits. Make sure you verify the provider is a registered CE provider before money exchanges hands.

16. Legal or Professional Services

You can write off any expenses from professional services you may use. This includes but is not limited to fees paid to your lawyer, tax professional, graphic designer, web designer, and title company. Make sure the fees are reasonable and in line with fees charged by other professionals in the same industry. Deducting fees that are higher than average for the type of service will raise a red flag with the IRS.

17. Insurance

Small business insurance and errors and omissions (E&O) insurance are deductible. You must have your own policy, however. If your brokerage is paying or charging you for E&O, that is not deductible, unless it’s covered by desk fees, which are deductible. Make sure you understand what your desk fees are covering if you pay them. If you have your own policy that you pay out-of-pocket for, it’s most likely deductible.

18. Wages and Benefits Paid to Employees

While your agents probably don’t work on a salary or have company-sponsored benefits, your administrative assistant and cleaning staff most likely do. Wages paid to employees are tax-deductible as well as benefits like healthcare and tuition reimbursement.

19. Retirement Plan Contribution

Another great real estate agent tax deduction is your retirement plan contributions. This deduction is only limited by your contribution limits. For example, you’re limited to 12.5% contribution with a standard individual retirement account (IRA), 25% of your income (up to $53,000) with a simplified employee pension (SEP) IRA, and $5,500 for a Roth IRA. In addition, contributions to your retirement account can often be done after the end of the calendar year and before your taxes are due to be filed. Check with your tax preparer for time limitations.

20. Interest on Business Loans or Business Credit Cards

Interest on business loans or dedicated business credit cards is another tax deduction real estate agents can take advantage of. The only caveat here is that the loans or credit lines must be solely used for your business to claim the deduction. If you use a personal card or personal loan to pay for business expenses, you can still deduct them, but you need to keep a record of which were business expenses and which were personal and be able to prove it.

4 Tips to Get the Most Out of Your Tax Deductions

Whether you plan to hire a tax professional or prepare your own taxes using tax software, there are some basic guidelines you need to follow to get the most out of your tax deductions and stay compliant with the IRS.

1. Deductions Must Be ‘Ordinary and Necessary’

“Ordinary and necessary” is the language the IRS uses to determine whether or not a business expense is tax-deductible. While this may seem vague, it’s something you always need to keep in mind when adding up deductions for your taxes.

For example, if you’re selling five $100,000 houses per year in Ohio and try to deduct the cost of a brand new Ferrari 458, the IRS is probably going to pay you a visit. While this is an obvious exaggeration, you should use “ordinary and necessary” as a rough yardstick for all your potential deductions.

2. Don’t Cheat on Your Taxes

Whether you prepare your own tax return or you hire a tax professional, you are ultimately responsible for the information reported on your tax return. Your signature at the bottom of the tax return means you agree with everything that has been reported and that the information is accurate.

That’s why it is important to have your certified public accountant (CPA) or tax professional go over the return with you to make sure you understand the deductions and income that have been reported on your tax return. If you do get caught falsifying your taxes, it is a felony. If you are convicted of tax fraud, you could serve up to five years in jail and be required to pay penalties of $100,000 or more.

3. Only Take Tax Advice From a Tax Professional

While your co-workers may have been in the industry for years, they are not licensed tax professionals. You cannot trust them to give you accurate advice on your taxes. If you have a question about your taxes, always consult a licensed tax professional.

4. Document Everything

If you’re not in the habit of documenting every expense, you should be. You should be documenting your mileage, meal receipts, membership dues, and tracking all business expenses. This can be as simple as downloading a business expense tracker app.

Use a checklist to make sure you don’t forget any important deductions throughout the year in preparation for tax time.

Bottom Line

Being a real estate agent can be complicated. There are a lot of laws, regulations, and constant changes to keep track of. Tax time doesn’t have to be complicated. Just remember to keep track of your expenses throughout the year. If you’re not sure whether they are tax-deductible or not, track them anyway. Being informed and prepared is the best way to make sure you get the maximum deductions you are eligible for at tax time.

About the Author

Eileen Maki

Eileen Maki is a staff writer and subject matter expert at Fit Small Business focusing on accounting software. In addition to being an accountant for more than 25 years, Eileen also holds a Masters Degree in Information Systems Management, is a certified project manager at the state and national levels, is a certified Intuit QuickBooks ProAdvisor, and has been a writer for over 30 years.

@AccountingSInfo

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