For real estate professionals who manage their finances themselves, finding the time (and energy, for that matter) to organize business expenses can be a task in itself. If this sounds like you, don’t put off setting your finances in order: procrastination at tax time is a recipe for disaster, not to mention a higher tax bill. We are here to help answer questions about the most common and looked over real estate agent tax deductions.
Knowing the 2020 real estate tax deductions can help you keep the right records and make the most of your deductions come tax season.
Taking the time now can save you thousands of dollars when it comes time to file your taxes. To help you get started on the right foot, we’ve outlined some essential tax deductions for real estate professionals to reduce the taxes you owe each year. Here are some helpful real estate agent tax deductions that, together, can save you some serious money:
What expenses can I write off?
Licenses & Fees
As a realtor, annual fees are an expected cost of doing business. As such, they’re deductible! For real estate agents, tax deductions in this category include renewal fees for your state license, the cost of professional memberships, and MLS dues. That said, there’s a pretty important caveat about professional memberships we need to discuss: the portion of your dues that eventually goes to political advocacy and lobbying is not deductible, so you’ll need to account for this when filing.
Business, E&O Insurance
Both General business insurance and Errors & Omissions (E&O) insurance are fully deductible as an IRS real estate tax deduction. While you may not deduct self-employment taxes from your taxable income, you may deduct real estate taxes that are necessary for your business.
All those commissions you’ve paid to employees or other agents are fully deductible as business expenses. This is a crucial deduction that can add up fast, so don’t overlook it!
Any software or app you need to run your business is fully tax-deductible, including business and accounting software, lead generation subscription services, CRM software, your Spotify subscription, even your automated mileage tracker.
Like most modern business owners, you likely spend money on digital and online advertising. Expenses related to advertising like marketing materials, signs, photography, and staging are all deductible through the advertising expense deduction. The broad requirements of this deduction make it an especially valuable realtor tax deductions.
If you exercise your license for an independent broker or a national franchise, your desk fees are fully deductible; just note that you won’t be able to take the home office deduction. Desk fees can constitute a sizable tax write-off for realtors.
Education & Training
As a competitive real estate professional, you likely invest in continuing education or other training courses to stay at the top of your field. If this sounds like you, you may be eligible to deduct expenses like materials costs, registration fees, and related travel expenses. However, there are a few requirements from the IRS:
- The education or training you’re receiving will not qualify you for another profession or trade
- The education you’re receiving does not count toward meeting minimum education requirements for your current career (meaning it has to be continuing education of an existing career, not a new one)
- The course(s) or program must serve the purpose of improving or maintaining a skill related to the field of real estate
Office-related expenses like photocopies, letterhead, and other products you need to keep your business going are all tax-deductible. Large purchases like furniture, a new copier, computers, fax machines, or phone systems can either be expensed in full the year they are purchased, or depreciated over a certain number of years. Should you choose to go the depreciation route, be sure to do your research and keep detailed financial records.
If you have a dedicated landline for your business, that expense can also be fully deducted. If you don’t have a landline, don’t worry! You can also deduct the business percentage of your cell phone bill if you use it for work — just use your bill to track your work use.
Meals for Work
Do you need to grab a meal while traveling on business? Are you constantly taking clients out for lunch or hosting dinners to generate referral business? Keep track of those expenses, because in either case, you’re able to deduct 50% of the total expense. All those lunch meetings and airport sandwiches can add up!
That said, we need to make a special note about entertainment expenses: according to IRS guidelines, these expenses are no longer deductible. This means that, while you can deduct food expenses related to your realty business, you may not deduct things like event tickets, client trips, sporting event outings, etc. (unless they’re given as a gift, which we’ll discuss in detail later).
Home Office Deduction
If you use part of your home, you may be able to take advantage of the home office deduction as a real estate tax deduction. Unless you’re already deducting desk fees, you can deduct a portion of expenses like rent or mortgage interest payments, utility bills, insurance costs, internet bills, and costs associated with repairs and maintenance.
That said, there’s a slight caveat: your home office must be used exclusively for business in order to qualify for the deduction — and the IRS is very strict about this requirement. This means that your bed, your sofa, or your favorite patio chair don’t count as a home office, according to the IRS, and are therefore not deductible.
Each and every mile you drive for your real estate business can be deducted from your taxes. Between listing presentations, showings, closings, and more, all those miles can add up to major savings on your taxes. While there are some of us that cling to a notebook for recording mileage, automating your mileage tracking can save you time, energy, and money by allowing you to record your business mileage without a second thought.
An automatic mileage tracker app like Everlance can be a lifesaver, recording each mile accurately and allowing you to categorize your trips whenever you’d like. If you drive over 10,000 miles annually for your real estate business, you’ll likely get the best deduction by using the standard mileage deduction. However, if you drive less frequently for realty or have a car payment that’s quite high, you might benefit from using the actual cost method to calculate your mileage deduction.
Real Estate Teams & Company Mileage Reimbursement
Have you teamed up with other real estate agents in your office? This has become a very common trend in brokerages and while having a team can increase sales, your expenses become more complicated. Our company mileage tracker software and teams expense log help you and your team stay organized for taxes.
Track Your Miles and Expenses Automatically with Everlance!