Like other business professionals, real estate agents must be conscientious of keeping their expenses in order throughout the year so that they’re prepared come tax season.
That means knowing what expenses qualify as deductibles and keeping receipts organized on a regular basis so that agents aren’t scrambling to get it all in order before the filing deadline.
To optimize their refund each tax season, agents can reference the following list of items that are, are not, or sometimes are tax-deductible.
The expense: Paid out commissions
Deductible? Yes
Even though splitting commissions with other agents is part of the job, it may feel less painful to do so knowing that those commissions paid out to other agents are deductible. Keep careful track of all those commissions paid out throughout the year because they can help out a lot come tax season.
The expense: Vehicle costs
Deductible? Yes
Most real estate agents spend a lot of time in their cars. Between gas, mileage, maintenance and the toll all that driving does on a car, the expenses add up. Fortunately, all of those expenses are tax-deductible for the agent who uses their vehicle to drive to and from showings and other work-related activities — including toll fees and parking.
The IRS offers two types of deductions for vehicle expenses: a standard mileage deduction and a deduction for all tracked auto expenses. Claiming the standard deduction usually helps individuals who drive at least 10,000 miles for business and still requires keeping a detailed trip log. Agents who drive fewer miles or happen to have higher car payments may opt to tally up the costs of their actual expenses, including car lease payments, auto loan interest, auto insurance, maintenance and repairs.
The expense: Home office
Deductible? Sometimes
Agents who have a designated home office that’s exclusively used for their business — and is where they conduct most of their business — can add home office expenses to their tax deductions. Agents have the option to do either a simplified deduction or a regular deduction, which tracks all actual expenses.
For individuals with a bigger office or a more expensive home, the regular deduction may be more fruitful. The simplified method allows agents to deduct $5 per square foot up to $1,500.
However, agents who deduct home office expenses cannot also deduct desk fees from their brokerage, so it’s worth considering which deduction may be more beneficial.
The expense: Desk fees
Deductible? Sometimes
Desk fees are deductible, no matter the size of the brokerage, or whether it’s a franchise, independent or otherwise. But, they are not deductible if an agent is already claiming home office expenses.
The expense: Marketing and advertising costs
Deductible? Yes
Quality marketing and advertising both pay off when trying to sell a client’s listing and when it comes to filing taxes. Any promotional items like business cards, flyers, signage and photography can be claimed, as well as the production costs associated with them. Likewise, digital and online advertising, including website design or hosting fees, pay-per-click ads, SEO marketing and videos, all qualify as deductions.
The expense: Training and education
Deductible? Sometimes
Expenses associated with education, training courses, coaching and conferences that are specific to the real estate industry are all deductible, which is a good thing in this competitive industry where agents need to stay on their A-game. Registration fees, materials and some travel expenses can be deducted as long as the training/education doesn’t also qualify the trainee for another business, is not in order to meet minimum educational requirements and/or helps the agent improve in their area of real estate.
The expense: Licenses, memberships, fees, insurance
Deductible? Sometimes
Most annual fees that real estate agents incur are deductible. Qualifying deductibles include state license renewals, professional memberships, MLS dues, general business and errors and omissions (E&O) insurance, real estate taxes necessary to conduct your business. Individuals who are self-employed are also eligible for an income tax deduction for half of self-employment taxes.
Professional membership fees that are not deductible, however, are the portion of dues that go toward lobbying and political advocacy, as outlined by the National Association of Realtors (NAR).
The expense: Software
Deductible? Yes
Software that’s necessary to keep an agent’s business running is also deductible. Things like accounting software, lead generation software, CRMs and any other products that can help track expenses or mileage all fall under this deductible category.
The expense: Parking tickets and court fees
Deductible? No
Hopefully, this is common sense for most agents, but just to clarify, any parking ticket or court fees incurred while on the job or as a result of a work activity are not deductible — the IRS won’t go for that.
The expense: Gifts
Deductible? Sometimes
For the most part, client gifts are deductible. However, there are a few caveats that agents need to be aware of per IRS guidelines.
For instance, agents can’t deduct more than $25 of the cost of business gifts given to each person, and if an agent and their spouse give gifts to the same person, it’s treated as one taxpayer’s deduction.
Additionally, incidental costs like engraving or packaging/shipping can’t be included in the $25 limit if they don’t add value to the gift, and gifts costing $4 or less with an agent’s business name permanently affixed to them can’t be considered. In all cases, a record needs to be provided showing the gift’s purpose and how much was spent on it.
The expense: Business meals
Deductible? Yes
Business meals are another regular expense that real estate agents can deduct. Any meals consumed while on a business trip or meals eaten with clients or colleagues in order to discuss business or generate referral business qualify as a deduction. For the 2022 tax year, agents are also able to deduct 100 percent of restaurant meals because of a COVID-19 policy to boost restaurant business.
The expense: Office supplies and equipment
Deductible? Yes
Office supplies and equipment are also deductible expenses, whether agents opt to claim desk fees or home office expenses. Supplies can include items like stationery and photocopies, and equipment can include anything from furniture to computers to phone and internet bills.
Agents who have a landline can deduct the phone’s expense in full, while agents who use their personal cell phone for their business can deduct the portion of their bill that corresponds to the phone’s business use.
Agents can also opt to deduct larger purchases under this category (furniture, tech equipment, computers) in full within one year or on a depreciated basis over a few years.
The expense: Health insurance
Deductible? Sometimes
If an agent and their spouse are not eligible for an employer-backed health plan, their health insurance premiums paid for themselves and their family will be deductible, including medical insurance, dental insurance and long-term insurance.
The expense: Donations
Deductible? Yes
Donating money to a charitable cause is good for the community and good for business — and it’s a deductible expense. Agents should never hesitate to donate to causes important to their community and save those receipts for tax season.
