If you’re a real estate agent, then it’s important to keep track of all your tax deductions so that you can lower your tax bill. In this article, we will discuss real estate agent tax deductions – what they are and how to take advantage of them.
Real estate agents are also self-employed business owners who must pay both income tax and self-employment tax.
These taxes can be split into four main categories:
Income Tax: Real estate agents are most likely to be subject to a variety of different taxes, including federal income tax as well as state income tax in the states where they live and work.
Self-Employment Tax: Real estate agents will also need to pay self-employment taxes on their earnings because many realtors run their business from home which means that they have office expenses that can lead them towards some great deductions come tax season!
Basic Costs Of Doing Business: One of the big costs for any realtor is the cost of doing business with things like advertising, marketing materials such as brochures or other promotional items, insurance premiums among other average monthly expenditures totaling $207 per real estate agent.
Deductible Expenses: Realtors can deduct a variety of different expenses on their tax returns which can include things like office and desk fees, licenses or professional dues as well as home internet costs.
Aside from the abovementioned, there are many deductions that most real estate agents just don’t know about, or choose to ignore. Here, we will focus on 51 most common realtor tax deductions you should know about in 2021 and beyond.
Real estate agent tax deductions are real estate-related tax reductions that realtors can claim on their income taxes, and thus increase their realtor earnings.
Real Estate Agents are already in a unique position to take advantage of deductions, and you should be taking full advantage of them. The more realtor tax deductions you claim, the less money goes into paying your tax bill each year.
Taxes are not fun for anyone, but if you know what deductions are available to you as a realtor, it can go a long way in helping you maintain your budget. This is not exhaustive by any means, and every tax situation will be different based on the rules that apply to each realtor’s individual circumstances.
Here are the most common real estate deductions for every agent:
Tax deductions on marketing real estate
Most of your marketing expenses come under tax deductions, which can include such things as home office expenses for your real estate business. It could be a sale, an open-house poster, or anything that helps you market your business. They are all tax-deductible.
Also, web development and maintenance, and anything to do with your digital marketing strategies come with deductions for real estate agents.
Marketing tax deductions mean every dollar you spend on growing your real estate business is worth two or more dollars in tax savings. These are fully deductible business expenses you must be aware of.
Such deductions include:
1. Open-house signs
2. Listing flyers
3. Business cards
4. Website development and maintenance
5. Direct mail
6. Expenses on running Google ads
Realtors tax deductions on education and training
As a real estate agent, learning never stops. Audible subscriptions, real estate books, and similar resources are all part of your real estate tax-deductible expenses.
You must understand that tax deductions for real estate agents, in this case, will come as:
7. Mandatory continuing education
8. Online courses
10. Real estate agent books
Deductions on real estate licenses and dues
Successful real estate agents know they have to pay monthly, quarterly, and yearly real estate tax-deductible expenses. All these are write-offs, and so you must be sure to keep an eye on them.
11. MLS Dues
12. NAR Dues
13. NAR Membership
14. MLS Fees or real estate tax-deductible expenses
15. Tax Professionals for realtors, taxes, and forms preparation
16. Deductible Real Estate agent fees:
17. Lead Generation Subscription Services (you can use that as a partial deduction on your tax returns)
18. Brokerage Desk Fees Expense Deduction (You may deduct the expense of home offices in which you work if it is used exclusively for business purposes.)
19. General Business Insurance Premiums (typically real property insurance will cover this type of coverage).
20. Chamber of Commerce
Service and fees for real estate agents
Smaller services and fee items can be a great source of tax deductions, which you must keep track of.
21. Online business registration fees (registration fees for online realtors)
22. Inspection Fees
23. Professional Development Fee (NAR membership fee)
24. Business Bank Fees
25. Book Keeping fees
Real estate agents insurance deductions
Do you have any coverages you are paying your real estate business expenses and process? You should keep track of them and make sure your books are in order. They include:
26. Realtor liability insurance premiums: If you have a realtor’s license, real estate agent insurance is probably already in place. This type of coverage can be used to cover the costs associated with your business and are generally deductible as an expense for real estate agents.
27. Property taxes: Property taxes on properties that you own or manage can be deducted from income to save money on paying tax obligations.
28. General Business Insurance – General business insurance is typically required for real estate agents to be able to cover the costs of liability and property damages.
29. Business Mileage: If you’re driving your own vehicle as an agent, mileage can qualify as a realtor tax deduction. The IRS says that if you are using your personal car in connection with real estate investments or rental properties, then those miles count as deductible expenses. However, make sure not to exceed 19 cents per mile so there’s no chance of getting audited by the IRS.
30. E & O – Errors and omissions insurance is another real estate tax deduction that can be obtained to cover potential liability on behalf of real estate agents, brokers, or other realty professionals.
Deductions on automobile and transport
Another place you are going to face deductions is in automobile and transport expenses. If you are a real estate agent, then the miles that your vehicle travels in connection with real estate investments may qualify for these deductions.
There are two choices for claiming these deductions:
- Standard Mileage Deduction
You are able to deduct the number of miles traveled on real estate-related business, up to a total of 19 cents per mile (with no cap).
- Standard Mileage Deduction with Hardship
You may also use this method if you have been the victim of what is called “hardship.” A real estate agent who has been victimized by hardship would be eligible for deductions higher than those allowed under the Standard Mileage Deduction.
You may only be able to deduct real estate-related travel expenses if you itemize deductions on your tax return.
For those who take the more complex itemization approach, you can claim the following:
31. Maintenance and repair – You can deduct money spent on real estate-related expenses, such as home office rental costs and furniture.
32. Gasoline and electricity
34. Lease Costs
Which one should you take for vehicles?
If you have a lot of mileage for the real estate business, then taking the Standard Mileage Deduction may be better. But if real estate-related travel expenses are lower, you might want to take an itemized deduction for those expenses and instead use a different vehicle that has higher mileage deductions available.
If you are a frequent traveler, whether alone or with other agents, most of your expenses are deductible. They include:
38. Lodging expenses
Real estate agent deductions on meals
If you meet with a client, a co-worker, or a partner, and purchase a meal, you can claim the cost of the meal as a real estate agent tax deduction. When you write up your real estate taxes, just keep in mind that if it wasn’t for business purposes, then the IRS will not let you deduct anything related to food or beverage purchases.
It’s also important to note that if other people join your meeting and everyone pays their fair share (which is how things should work), then they may be able to take on some of these expenses too!
Furthermore, when tracking this expense remember: You can only include 50% for non-workout meals with clients due to an agreement between Canada and the US. The rule does not apply when eating at client’s homes or out-of-town meetings; those costs are fully deductible.
39. Meals (50%)
Home office deduction
In the real estate industry, a home office is considered taxable by IRA, under self-employment taxes. It has become more strict over the past few years. One must be first, self-employed, and use the home office space exclusively for the real estate business.
Also, the office must be exclusively your home office and part of your business tools to qualify for these deductions. Self-employment tax means you are working strictly from home and your offices are set to conduct real estate business-related activities.
There are two methods for claiming these deductions:
The simple approach
In this case, you multiply the square footage of your house by five dollars to get the amount of space you can deduct.
The more complex calculation approach
In this case, you add up all your real estate-related expenses and divide them by your gross income to get the tax-deductible percentage. It’s best to consult a professional before deciding on which one to go with.
Related costs include things like insurance, mortgage, real estate agent commissions, realtor association dues, and office supplies.
Rent and utilities for your home office
The rent your pay for a rented office is tax-deductible because it is a real estate expense. Utility costs are also tax deductible but only up to the amount of income you earn from your real estate activities.
That means everything you do in this office, including the use of utilities like your fax machines, total expense, marketing materials, phone bill and everything else is tax-deductible.
When the tax time comes, expect deductions from:
40. Office rent
41. Office Utilities
IRS allows real estate agents to spend $25 per realtor on gifts and advertising. There are considered business expenses, whether you are an independent broker or working with a brokerage. They are all part deductions you can take advantage of when tax time comes.
Sales tax deductions for real estate agents
As a real estate agent, you might find yourself in very hard situations, most of which may require money. You will be surprised that this money is tax-deductible.
You will pay for things like:
45. Appraisal fees
47. Finders fees
If you use office supplies to conduct business, or as expenses related to your performance, they are write-offs and should be treated as such.
So, if you spend money on any of the following items:
49. Fax paper, Pens
50. Postage stamps
51. Rubber bands and staples
You will need to keep track of these expenses throughout your year so that you can claim them as real estate agent deductions.
Tips for dealing with real estate agent tax
Here are some tips you can use for tax preparation for this tax year:
Find professional assistance from a tax expert
It may not be easy to keep track of all your business purchases, referral business expenses, state license renewal, desk fee, per mile-deduction, and all those daily expenses. And that is why you may need tax advice from a professional.
Start by identifying a Certified Public Accountant (CPA) or tax preparation specialist and then set up an appointment to reach your goals. They will, not only explain how the taxing works but will also file the taxes for you.
If you are unable, or just not interested in doing this yourself, there is another option: Hire a real estate agent that specializes in real estate taxes.
They should be able to help you calculate your taxable income, including professional memberships, national franchises, employment pension, membership dues, property marketing expenses, and offer legal advice on how you should proceed.
The harder it gets for real estate agents to find clients and make sales (especially as more people think of the profession as less than desirable), the easier they can be convinced by a company touting its “tax services”—even though these companies might really only offer bookkeeping services with some vague tax advice sprinkled in.
Don’t be fooled by what seems like a great deal. Find someone who’s actually good at their job before signing on any dotted lines; otherwise, you could end up paying dearly in the long run.
Keep your finance organized
Organization skills are a crucial skill related to success in the real estate industry. Before you even start worrying about all these deductible, keep your finances organized to start.
You can either hire a professional bookkeeper which will cost you about $100 per month, or you can invest in some organization software like QuickBooks (learn doing the job yourself.
One thing that is important when it comes down to your finances and taxes is knowing how much money you have coming in each year before we start plugging numbers into any equations – even if we want to make them as simple as possible.
If your realtor doesn’t know this information, find someone who does. When looking at business income vs expenses, the more accurate these are—the less likely there will be surprises come April 15th.
Track your business mileage carefully
You’ll be able to deduct every mile you drive for a real estate agent-related activity, and the IRS offers some pretty specific guidelines about what qualifies as real estate agent related activities:
- Phone calls with clients or potential clients.
- Proposals sent in response to client requests.
- Client meetings (including open houses) that are not attended by any other employees of the company because they’re offsite at another meeting or working on something else unrelated to real estate sales. And more.
If you think there might be a chance an expense is deductible, it’s worth following up with this key benefit before throwing away hard-earned money from your paycheck without considering if you could be saving it.
Keep quarterly taxes in mind
Quarterly taxes are often forgotten when handling realtors tax write-offs. It is crucial that you keep this in mind when creating or discussing tax strategies for real estate agents. These include January 15th, April 15th, July 15th, and October 16.
Save more on real estate agent tax with S-Corp Election
A real estate agent tax deduction that is often overlooked by realtors in the beginning stages of their business venture, but one they should not overlook when considering realtor tax deductions is S-Corp Election. Form an LLC with S-Corp Elections, and you can save a significant amount on these taxes.
S-Corp election allows you to save more on realty taxes than a sole proprietorship or partnership. It offers benefits such as: being able to expense all costs upfront and deduct them from revenue before arriving at a net profit; having fewer restrictions about what your corporation can do (like hiring employees); and paying less self-employment tax.
Well, there you have it, the 51 tax educations for real estate agents you must know. As you continue working you will come across more areas you can leverage for more benefits in real estate. We hope this guide has been helpful.
If you have any questions or addition, do not hesitate to reach out. We are here for you!