9 Tax Deductions Every Real Estate Agent Should Know

Tax season is coming up soon, and if you’re a real estate agent, you should learn how to maximize your deductions. Many have a variety of expenses, and being able to identify which expenses you can use as deductions is critical to helping you keep more of your hard-earned dollars.

This is important knowledge whether or not you already have an enrolled agent on hand. Understanding which expenses are allowed will help you avoid overpaying on your quarterly and year-end taxes, no matter where you are in your career.

Vehicle Mileage or Expense

You spend your days driving between your office, showing properties and other appointments. How do you decide whether to go with the standard mileage deduction or track all your auto-related expenses? There’s an easy way to break this down:

If you drive 10,000 miles or more per year for your real estate business, you may get the greatest tax benefit by taking the standard mileage deduction. If you are a lower mileage driver, or have especially high car payments, the actual cost method may yield a higher deduction.

For those who drive more than 10K per year, the IRS requires you to keep a detailed log in order to claim this deduction, which includes date, time, mileage and purpose of the trip. It all comes down to the numbers. However, going back and forth brings consequences.

Marketing and Advertising

Successful real estate agents typically invest in marketing and advertising, which means that business expenses like business cards, flyers, signs, ads, and promos are all deductible. However, did you know that production costs, such as writing and design fees (whether the materials are produced by an agency or part-time hire) are also deductible?

Digital and online advertising costs are quickly becoming the greatest area of spending. This includes website design and hosting fees, search engine marketing, pay per click advertising, video production, and any other IT-related costs.

Home Office Deduction

Do you have a dedicated area of your home for work? Perfect. You’re may be eligible for a home office deduction if your space meets specific guidelines. This applies even if you also have office space at your broker’s office — unless you’re deducting desk fees already (see more below). Like the vehicle deduction, the home office deduction offers an option: the regular method or a simplified method. Most self-employed people find that the simplified method maximizes their deduction. However, if you have a particularly large home office, or live in a very high-cost area, the regular method — in which you track actual expenses — may yield the highest deduction. This deduction depends on whether or not you are taxed on an S-Corporation.

Desk Fees

Whether you are hanging your license under a national franchise or with an independent broker, your desk fees are deductible.

Note: Are you’re taking a deduction for brokerage desk fees? If so, you will not be able to claim the home office deduction.

Office Supplies and Equipment

Whether you’re taking desk fees or home-office deductions, you can still claim other office-related expenses. This includes stationary, photocopies, and any other consumables needed to run your business. Other large purchases that can be expensed in full — or depreciated over a number of years — include furniture, fax machines, copiers, computers, or your telephone and associated bill.

If you have a dedicated landline telephone for business, you can fully deduct this expense. If you use your cell phone only, you are eligible to deduct the business percentage of that expense.

Meals and Entertainment

There are two situations in which you can deduct meals as a business expense: when you are traveling on business and when you are dining with clients or with other professionals for the purpose of conducting business or generating referral business. In either case, you can deduct 50 percent of your total expense, which includes tax and tip for the meal. Under the new law, entertainment expenses are no longer deductible – even if business is discussed.

In the case of events that are provided to the general public, such as a well-advertised open house, you are able to deduct 100 percent of the cost of refreshments and food.

Meal expenses can add up. Many agents save receipts and enter them into spreadsheets. They may also give them to an accountant later, but often this results in loss of receipts, and loss of money.

Fees, Licenses, Memberships, and Insurance

Annual fees are a common cost of doing business and are deductible. In real estate, that means your state license renewal, professional memberships, and MLS dues. An important caveat with regard to professional memberships: The portion of your membership dues attributable to lobbying and political advocacy is not deductible. (For information on the deductibility of your National Association of REALTORS® dues, click here.) General business insurance and Errors and Omissions (E&O) insurance are both fully deductible business expenses.

Professional Development and Travel

Given rapid industry change, continuing education is a great way to stay competitive. It’s also a requirement in most states. Many real estate professionals pursue professional development through classes, trade shows, conferences, or coaching. If you need to travel to attend an event or meet with a coach, you may be able to deduct those transportation and/or accommodation costs.

It’s imperative to track all this information correctly to ensure that you’re compliant with the IRS. This means it’s time to check in with your EA. If you are going for a related certificate (i.e. Relocation Specialist) the cost of the education testing is also deductible. However, a new endeavor (realtors hoping to become a broker) is not.

Software and Business Tools

Any software needed to run your business is fully deductible — including lead generation subscription services such as customer relationship management (CRM) software.

Go into this tax season confidently knowing and understanding how you can save money.

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Jeffrey Schneider, EA, CTRS, NTPI Fellow has the knowledge and expertise to help you reach a favorable outcome with the IRS. He is the head honcho at SFS Tax & Accounting as well as an Enrolled Agent and a Certified Tax Resolution Specialist.
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