Increase your Tax Deductions as a Real Estate Agent or Broker
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 with answer questions about the most common and looked over real estate agent tax deductions.
Knowing the 2019 real estate tax deductions can help you keep the right records and make the most of your deductions come tax season, and 2018 real estate agent tax deductions will help you as you file for the past year.
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:
Real Estate Rental Property Losses
As a real estate professional, you are eligible to deduct losses on rental properties that you own. If you are both a landlord (or lady) and a realtor, this can make for a substantial deduction — a loss on a rental property is considered “passive income” for other professions, and therefore can’t be deducted from non-passive income (the type of income you receive from your work).
Provided you (or your spouse) spend more than half your working hours throughout the year in at least one realty business, you are able to deduct rental property losses from your regular income. The minimum hourly requirement to qualify for this deduction is 751 hours annually.
Additionally, you also need to “materially participate” in the management of the rental properties you own — at least 500 hours worked at the rental activity would constitute material participation in the eyes of the IRS. However, there are other ways you can qualify.
If you own multiple properties, the IRS requires you to materially participate — meaning meet that 500 annual hour requirement — for each property you own. Unless, that is, you file an election with the IRS to treat all of your rental properties as a single activity.
It’s important to file this election by the stated deadline; if you don’t, you’ll be required to meet that material participation requirement for each property, which is impossible for most of us.
Real Estate Agent Business Expenses
When you think about business expenses, you likely think of things like office-related expenses like photocopies, letterhead, and other products you need to keep your business going. That said, there are plenty of other business expenses you can deduct as a realtor.
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.
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).
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:
- 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
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.
Digital and online advertising costs are quickly becoming the greatest area of spending. Advertising expenses such as marketing materials, staging, photography and signage can all be deductible through the Internal Revenue Service’s advertising expense deduction. This is one of the best deductions because of its broad requirements!
Real Estate – Specific Tax Deductible Business Expenses
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!
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.
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.
Real estate closing gifts are tax deductible, as are other gifts given to clients or other business associates, provided that you follow a few stipulations from the IRS:
- The amount of your deduction of the cost of business gifts do not exceed $25 per person
- If you and your spouse each give a gift to the same person, you are counted as one taxpayer by the IRS
- Engraving, packaging, shipping, and other incidental costs do not count toward that $25 per-person limit, provided they don’t add substantial value to the gift
- Do not count gifts costing less than $4 per person on which your business name is engraved or printed (things like pens, koozies, notepads, etc.) that you distribute on a regular basis
- You’ll need the records proving the business-related nature of the gift, along with the amount you spent on the gift
Real Estate Mileage Tracker for Tax Deductions
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 a 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.
Real Estate Agent Tax Deductions – 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 (which we’ll talk about momentarily), 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.
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.
More Real Estate Agent Tax Deductions – Services Tax Write-off’s
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. Those subscriptions can really add up, so don’t neglect to deduct them!
Keeping your business expenses organized doesn’t have to be complicated. Automate as much of your expense tracking as possible, and make sure to take time to categorize expenses and mileage on a regular basis. By implementing a system that requires minimal maintenance, you’ll save yourself time, effort, and lots of stress at tax time. Let us know if you have any other helpful real estate agent tax deduction tips.