In today’s post, I’m going to share with you 115 tax deductions for real estate agents that I’ve discovered in the 11 years I’ve been in the business. Many of these deductions are overlooked and underused by real estate agents across the country.
Before I start, I want to point out that I am not a Certified Public Accountant (CPA). Consult with your CPA before filing your taxes and using any of the advice in this article.
Alright, so taxes. Everyone typically dreads them, especially as an independent contractor. When you are W2, tax season represents to many, a mini-bonus where you receive back overpaid taxes from the previous year.
However, as an independent contractor, especially if you are not making estimated quarterly taxes, April represents the time that you have to dive into your savings and write one of the most significant checks you’ll likely write all year.
For many years, this check was tens of thousands of dollars, and it was growing more and more each year. Which overall is a good thing because it means you are making more money. Still, I began to figure out how to start keeping more of my money by understanding how Realtor tax deductions and strategies could work to my advantage as a real estate agent.
** 2021 UPDATE – US Filing deadline extended to May 17th, 2021. Also, Texas residents have until June 15th, 2021. **
Finding a Great CPA
It started with finding a great Certified Public Accountant (CPA) who not only filed taxes but would sit with me and explain how they worked so I could be proactive versus reactive. An invaluable CPA should be aggressive enough to not leave tons of money on the table for fear of an audit but rather explain how to strategically work your finances throughout the year to maximize your legal deductions.
Of course, you are going to likely pay a good bit more for a good CPA versus doing it yourself or just getting someone that files your taxes for you. But the investment will quickly repay itself for years and decades to come.
Before we jump into all of the deductions, it’s also important to note that maximizing your real estate tax deduction starts with keeping your finances organized. It’s much easier for your CPA to advise you and maximize your deductions when he can easily see what you’re working with.
You can either go out and hire a bookkeeper, which will run you around $200 per month, or learn how to do your bookkeeping and use a tool like Quickbooks Online. For more information, check out my post on Quickbooks For Real Estate Agents.
Without further ado, here are 115 tax deductions for real estate agents that I recommend looking into further.
Marketing Tax Deductions For Real Estate Agents
Most real estate agent marketing expenses will fall under the category of a tax deduction. Whether it’s sales and open house signs and flyers or business cards, these types of marketing materials are all tax deductions for real estate agents. Other items include website development and maintenance, direct mail, running ads on Google and social media, the management costs of those ads.
- Open House Signs
- Listing Yard Signs
- Listing Flyers
- Business Cards
- Website Development and Maintenance
- Direct Mail
- Advertisements on Google and Social Media
- Management Costs for Running The Ads
Education And Training
If you are a successful real estate agent, you are likely reinvesting in yourself in the form of training, coaching, and continuing education requirements. Continuing education can include things like your Audible subscription, real estate books, and online courses.
- Mandatory Continuing Education
- Audible Subscription (if used for business purpose)
- Real Estate Agent Books
- Online Courses
Licenses And Dues
We all know that being a real estate professional means paying monthly, quarterly, and annual fees. Be sure to keep a reasonable log of these as they are a tax write off.
- MLS Dues
- NAR Dues
- Association/Board Dues
- Brokerage Fees
- Desk Fees
- Royalty/Franchise Fees
- Chamber of Commerce
Services And Fees
Keep track of the smaller services and fee items. These more modest monthly recurring fees add up by the end of the year. If they are charges that facilitate your real estate business, chances are they are a deductible expense.
- Business Bank Fees
- Bookkeeping Fees
- Business Licenses
- Interest on Business Purchases
- Ongoing App Subscriptions
- Internet Service
- Cell Phone Service (Percentage used for business)
Insurance Tax Deductions For Real Estate Agents
Make sure that you are keeping track of any coverage that you are paying for business-wise. This coverage includes each E&O payment that comes out of your commissions, a general business umbrella policy, private health insurance, and even a percentage of your auto insurance.
- E&O Insurance
- General Business Insurance
- Private Health Insurance (talked about more later)
- Auto Insurance
Automobile And Transportation
The best car for real estate agents will depend on your needs. This includes taxes. Automobiles can be a tricky tax deduction for real estate agents. Leave it to me; I’ve purchased over 15 cars in the last 11 years, so I’d know what a mess they make on deductions, especially when you change them out as frequently as I tend to do.
You have two choices when claiming a vehicle tax deduction.
Simple Method (Standard Mileage Deduction)
The simple method where you take a cost per mileage driven for business.
For 2019, the standard mileage rate is $.58 per mile.
Simply put if you drove 10,000 miles, you could deduct $5,800 from your
Additionally, you can also add registration fees and taxes, vehicle loan interest, car washes, tolls, and parking fees to the standard mileage deduction.
Complex Method (Itemized Deduction)
The more complicated method is where you itemize the different expenses made throughout the year to maintain and service your vehicle/transportation.
Should you go the more complex method here are the different deductions you can claim:
- Gas and Electricity
- Lease Costs
- Car Washes
- Interest on Auto Loan (not the payment itself though)
Concerning depreciation, there are multiple ways to calculate this type of business expense for a vehicle:
- Straight-Line Depreciation
- Accelerated Depreciation (MACRS)
- Bonus Depreciation
- Section 179 Expense Deduction
Which method to use and how to calculate depreciation can be tricky and best left to your CPA. Though if you want more information on this, check out this helpful post on TurboTax’s website.
Bottom Line On Vehicles
If you drive A LOT of miles (over 15,000 annually) and your vehicle is less expensive (less than $30,000), then the standard mileage deduction is probably your best bet. If you have a costly vehicle and don’t drive A LOT, you are likely better using the more complex method of itemization.
If you regularly travel for real estate, many of the expenses are fully tax deductible. Be sure that if you are mixing business with pleasure on a trip that you calculate an appropriate percentage of time spent doing business to write off the proper amounts.
Meal Tax Deductions For Real Estate Agents
If you discuss work with a coworker, client, or friend while purchasing a meal, it’s a write-off of 50%. Be sure to document who you ate the meal with and a sentence or two about what you discussed.
- Meals (50%)
Home Office Deduction
The IRS has made the home office deduction a little more strict in recent years. First of all, you must be self-employed. For real estate agents, that’s not an issue. Where it gets tricky is if you are part-time. Consult with your CPA about if you should take a home office deduction if you are a part-time agent and also have a full-time salaried job.
Additionally, your office must be 100% dedicated to being your office. You cannot set up a dual-purpose setup or have your computer be in the corner of your bedroom, etc.
The home office deduction is on an “honor roll” type of system but be prepared in the event of an audit that you can prove that you used the space entirely for business and nothing else.
Lastly, there are two ways in which you can receive the deduction.
The simple method where you multiply the square footage of the room by $5 (maximum of $1500). An example would be a 150 square foot room that you use exclusively as your office. Multiplying that by $5 gives you $750 that you can deduct for your home office.
The more complicated method is where you itemize related costs associated with your home and multiply them by the percentage of the house that you use for your office.
These related costs include:
- Mortgage Interest/Rent
- Property Tax
- Security System
Office Rent And Utilities
If you rent office space then the rent you pay is tax-deductible. Additionally, utilities, renters insurance, and any maintenance you may spend on the space would be deductible as well.
- Office Rent
- Office Utilities
- Renters Insurance
- Maintenance on Rental
- Internet Service
- Phone Service
Gifts ($25 Deduction Limit)
The IRS allows real estate agents $25 to spend on real estate closing gifts. This limit may cause a problem as many agents tend to spend more than this on closing gifts, referral gifts, etc. One way to potentially solve this problem is if you can add your branding to the gift. The gift then becomes marketing and has different requirements. Therefore, a higher deduction would be allowed compared solely to a gift.
Sales Tax Deductions For Real Estate Agents
As real estate agents, we often find ourselves in unique situations that require unusual solutions. If these solutions require money, you may be surprised to find them as tax deductions for real estate agents. Here are some of the things that I’ve paid for over the years that I was able to realize as tax deductions:
- Appraisal Fees
- CL100 (termite inspection) Fees
- Closing Attorney Fees
- Courier Services/Delivery Fees
- Finder Fees/Referral Fees
- Repairs on a Listed Property
- Home Warranty
- Inspection Fees
- Notary Fees
- Open House Expenses
- Staging Fees
Self-Employed Health Insurance Deduction
Being self-employed, we have the unique “opportunity” to pay for high health care premiums. The one upside to this is that these premiums you pay for yourself, as well as your spouse and dependents, are 100% tax-deductible. This deduction lowers your overall adjusted gross income (AGI), which will lower your overall tax burden for the year.
Also, do note that in 2019 the uninsured penalty for not having insurance has been removed under the Tax Cuts and Jobs Act.
- Self-Employed Health Insurance
Business Equipment Expenses
Assuming you are purchasing standard business equipment like computers, cameras, etc. most of these items are fully deductible in the year you are buying them versus having to depreciate them over multiple years. However, if you find yourself purchasing expensive equipment over $1000, be sure to check with your CPA if it can be deducted or depreciated.
- Camera and Lenses
- Cleaning Equipment
- Equipment Repair
- Spare Keys
- Hard Drives
- iPad or Tablet
- Lock Boxes
- Staging Items
- Measuring Equipment
Pretty self-explanatory for office supplies. If you use them for business, write them off. I love purchasing just about everything I can from my Amazon business account. Having this new account helps me track what purchases I’m making for my business versus personal use. If you use one account for Amazon purchases, be sure to at least have a business credit card or bank set up to separate your purchases.
- Client Refreshments (Coffee, Water, etc.)
- Copier Fees
- Cleaning Services
- Office Furniture
- Filing Cabinets
- Cloud Storage of Business Files
Software And Business Tools
If you are using software to run your real estate business, the purchase is fully deductible, which includes lead generation subscription services such as customer relationship management (CRM) software. Top tools such as QuickBooks, Sage, NetSuite not only ease the process of accounting, but also makes tax season hassle-free to a greater extent.
- CRM (Check out my post about crm Systems)
- Other Business Software
Employees (Including Virtual Support)
If you haven’t looked into hiring a virtual assistant through Upwork, Fiver, or Myoutdesk, you are missing out. Many skilled workers are willing to take many tasks off your plate, some more specialized than others.
Bookkeeping is an excellent example of this. If you aren’t good with numbers and don’t want to learn the ins and outs of learning Quickbooks or another bookkeeping software, consider hiring a virtual bookkeeper. It’s safe, simple, and relatively inexpensive if your finances aren’t too complicated.
You can also use virtual assistants for administrative-type duties like data entry, social media, filing paperwork, website management, etc.
Many of these virtual assistants work for $4-10 / hour, with $10 being very specialized workers, mostly with degrees.
- Transaction Management
- Family Wages
- Payroll and Unemployment (FUTA) Taxes
- Showing Assistant
- Real Estate Virtual Assistant
Retirement Plan Contribution
It’s important to have a real estate agent retirement plan. Whatever plan you choose, be sure that you are contributing to retirement each year. You would be wise to max your plan out as you’ll see that it can offer some substantial savings on taxes, even lowering you to the next lowest income bracket.
There are a few different plans to choose from; I’ll list them out below:
- Self Employment Pension (SEP) IRA
2019 limit is the lesser of $56,000 or 25% of income. As self-employed individuals, this plan allows real estate agents to invest more money each year into retirement versus the traditional IRA plan. Keep in mind that if you do have employees other than yourself or your spouse, you’ll need to match whatever contribution percentage that you elect for yourself, for your eligible employees as well.
- Traditional IRAs
2019 limit under MAGI $122,000 individual or $193,000 married is $6,000 ($7,000 over 50), last day to contribute is April 15th. This plan is open to all individuals, regardless of being self-employed or not.
- Solo 401k
2019 individual contribution limit is $19,000, $25,000 if over 50. However, like a corporate 401k, your company can also contribute to this plan – as much as 25% of your compensation. The max individual plus corporate contribution to this plan can be as high as $56,000 or $62,000 if over 50, annually! Must be self-employed with no employees in your company other than you and your spouse to qualify for this plan.
Legal Or Professional Services
As I mentioned earlier in the post, enlisting the help of a fantastic CPA should be the first step into saving money on taxes. If you’ve read this far down the post, you’re probably thinking, but Kyle, why then should I learn and understand all of this information so far?
Great question! As I mentioned earlier, I’ve used a CPA for as many years back as I can remember. That said, I still pay very close attention to the rules and guidelines for my industry, so I can not only HEAR what my CPA is telling me but UNDERSTAND it as well. When I first started using my CPA, I went off of blind faith that what he was doing and saying was correct. Then I began to learn and read about the different strategies myself, and with understanding came better adoption and compliance with these strategies.
- Tax Professionals
- Legal Professionals
Real Estate Rental Property Losses
One tax benefit of being a real estate agent and owning rental properties is rental property losses. Unlike conventional investors who may invest in real estate as a side gig to their regular job, we real estate agents can write off any losses from rental properties against our taxable income, lowering our adjusted gross income (AGI).
This deduction is HUGE as rental properties commonly produce positive cash flow and gains, but depreciation and other write-offs against these properties can show a loss on paper.
Because rental income is considered passive income to ordinary employees outside of the real estate industry, rental losses are NOT able to be deducted from their “Salaried” income as they are different forms of income. This caveat is not the case for a self-employed real estate agent.
Some qualifications must be satisfied to realize these losses, even as a real estate agent. Consult with your CPA to see if you qualify.
- Rental Property Losses
BONUS Tax Strategy S-Corp Election Status
Real estate agents have the unique opportunity to save even more money on taxes each year. By forming an LLC with an S-Corp election, real estate agents can save thousands or even tens of thousands of dollars on self-employment tax versus being a sole proprietor.
The IRS typically charges self-employed business owners 15.3% for self-employment (12.4% for social security and 2.9% for medicare).
Not Setup As S-Corp
If you haven’t set your company up as an S-Corp, you will pay this 15.3%, in addition to your income tax, for all of your adjusted gross income.
For example, if you earned $100,000 in after deductions, adjusted gross income, your SE tax alone would be $15,300 (not including what you’d pay for income tax).
Setup As S-Corp
If you set yourself up as an S-Corp, you will pay yourself a reasonable salary and also receive dividends. The average real estate agent salary is around $40,000 annually.
Going back to our example of $100,000 adjusted gross income, let’s assume you paid yourself a salary of $40,000 and took $60,000 in dividends. In this scenario, you’d only pay the 15.3% SE tax on the $40,000.
In this example, your self-employment tax is $6,120, effectively lowering your tax burden by nearly $9,000.
A Few Things To Keep In Mind
To file as an S-corp will likely take additional work from your CPA, which will likely increase costs a bit.
Additionally, you’ll have to pay Federal Unemployment Tax (FUTA) on the salaried income. FUTA is 6.2%.
Last, to receive commissions into an LLC, you’ll likely need to check with your broker to see what is required. In Texas, I need to have my own broker’s license, be an associate broker at my brokerage to receive commissions into my LLC.
Be sure to check with your state’s real estate commission and your broker before implementing this strategy.
Do the math for your situation, though and see if switching over to an S-Corp LLC would save you money on taxes. For most agents and brokers, it DOES!
**Reminder ** Quarterly Taxes
Unless you earn less than $12,000 annually individually or $24,000 annually jointly with a spouse, self-employed contractors are required to pay estimated quarterly taxes every three months.
- January 15th
- April 15th
- June 17th
- September 16th
**Reminder** 1099 Forms Due January 31st
If you’ve used contracted labor and are issuing a 1099 form to recoup the actual expenses paid, you’ll need to file that contractor’s 1099-MISC form by no later than January 31st each year to not receive a penalty.
That about sums it up! I hope these 115 tax deductions for real estate agents help you not only save money on taxes from the year before but also guides you to be more strategic on tax savings for the future.
As always, if you have any questions or comments, please add them to the comment box below.
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