Real Estate Agent Mileage Rate Deduction
If you’re a real estate agent, you likely use a vehicle for work most days. All of those miles spent traveling to various properties and meetings with clients add up, and you’re able to deduct business-related mileage and expenses when you do your annual taxes. This means that you could be taking a (potentially substantial!) tax deduction for the miles you travel for work.
You can calculate your deduction based on the simpler standard mileage deduction, or you can deduct based on your actual expenses, whichever yields the greater deduction for you. The standard mileage deduction offers a simplified way of calculating your deduction, while the actual expense method allows you to deduct all the expenses for your vehicle and can be worthwhile, even though it requires more detailed record-keeping and more nuanced math to calculate.
Tracking your mileage automatically is the easiest way to ensure that you’re maximizing your deduction come tax season, but no matter how you track your miles it’s important to keep detailed, IRS-compliant records of your mileage and business expenses.
So what kinds of mileage can you deduct? Here we’ll discuss some common uses of the mileage deduction for real estate professionals, as well as some other deductions that can save you money at the end of the year.
Common Mileage Deductions for Real Estate Agents
Whether you’re self-employed like many real-estate agents or work for a large firm, the mileage deduction is one of the biggest, if not the single biggest, deductions you can claim. Particularly if you’re a top performing agent, you could save a lot of money on your taxes by taking the mileage deduction. You should be keeping detailed records of your mileage in order to take full advantage of this opportunity.
Think of how many trips you make with a buyer before they close a sale, or how many times you drive to properties to refill flyers or to conduct open houses. All those miles add up, and it’s important to keep track of your mileage for every trip to maximize your deduction.
So what trips should you be tracking your mileage for? The short answer is, you should be tracking everything. You should be tracking trips you make to properties or trips taken to meet with clients. You can also track trips to properties to conduct open houses, to refill flyers and brochures, to post or remove signs, or to collect documents. You should track trips for conferences or training sessions, or for meetings with clients. It is also important to track trips for supplies, particularly if you are self-employed.
All these miles can add up to major savings during tax season. Every mile you drive for work is important to log and, since you’re driving so much for work, automating your mileage tracking can make it simple to categorize any trip as being for business or personal reasons, without having to take too much time out of your day.
Automating your mileage tracking makes it much easier to track your mileage — no more losing that note you wrote on the back of a receipt or forgetting to write down your mileage in that antiquated notebook! You’ll be able to categorize each trip as you go, and you can edit your records later if you’re too busy to do it in the moment.
While your mileage is the most important aspect of your expenses to track, you’ll also want to maintain records of money spent on insurance, maintenance and repairs, parking fees, tolls, and other vehicle-related expenses. You’ll be able to deduct a portion of these expenses based on what proportion of your total miles you drive for work. That means that if you use your car for work 50% of the time, you can deduct 50% of your total vehicle-related expenses.
After calculating your actual expenses, you may find that it is more beneficial to deduct based on your actual expenses rather than taking the standard mileage deduction. This is one of the benefits of keeping detailed expense records and can help you take your maximum deduction. While the standard mileage deduction is good for simplicity, if you have bought a car for work or have made major repairs to your vehicle in the past year, the actual expense method may save you more money in the long term.
If you choose to take the actual expenses deduction, you should make sure you have quick access to all the records you have, and that those records are kept in an orderly and easy-to-read format. This will protect you in the event of an audit and will help you justify the amount you deducted.
What Information Should I Include in My Records?
Any IRS-compliant records will include the following information. If you’re using an automated mileage tracking app, check their format to make sure the information below is included:
- The date of the trip
- The destination, including the client’s name and business address
- The total miles you took on the trip
- Any relevant fees (such as parking fees or tolls)
In the unlikely event of an audit, it is important to keep detailed information to justify your expenses. The IRS will expect at least this level of detail and will not accept non-compliant records, so making sure that your records are adequate is crucial to your deduction.
What Other Expenses Can Real Estate Agents Deduct?
While the mileage deduction is by far the most essential for you to maximize your tax savings, there are also other deductions to look out for. Here we’ll discuss some common deductions for real estate professionals that may be applicable to you.
First, travel expenses, such as plane tickets and hotel costs, are tax-deductible when they are for business purposes. If you travel for work to conferences or to view and sell properties in other states, you could be deducting the cost of that travel.
Keep records of the dates, destinations, and purposes for flights, as well as any hotel expenses incurred during your stay. While rental cars can also be deducted for business purposes, it is important to track your mileage and only deduct the mileage traveled for business purposes, not personal reasons.
50% of the cost of food while traveling or while entertaining clients can also be deducted, though it should be noted that, through the IRS’s new rules regarding entertainment costs, most entertainment costs are no longer deductible. However, business dinners and the cost of food incurred while traveling remain deductible at a rate of 50%.
If you work from home and have a dedicated home office, you could be taking a deduction based on the square footage of your office. The home office deduction is based on the size of your space relative to the size of your home, allowing you to deduct a portion of rent, utilities, and other expenses such as renovation or repair costs.
There are a number of deductions available to you as a real estate professional, but the most important and most lucrative is the mileage deduction. It is crucial to track your business mileage and maintain detailed records in order to get the maximum deduction available to you. There are many ways to automate your mileage tracking; find one that works with you and maintain your records to get your maximum deductions.