8 Tax Deductions Every Real Estate Agent Should Know About
Lower Your Taxable Income with These Tax Deductions
Real estate agents have a variety of expenses that take a big bite out of their profits. Fortunately, you can recoup a large number of these costs at tax time by claiming them as business-related costs. Here are eight important deductions that can lower your taxable income.
- Vehicle Mileage or Expense: Real estate professionals spend a lot of time driving between properties and appointments. This means they can deduct fuel costs, car insurance and vehicle repairs, as long as they are related to business. How do you decide whether to track your auto-related expenses or simply opt for the standard mileage deduction? Generally, if you drive at least 10,000 miles every year for your real estate business, the standard mileage deduction will usually provide the best benefit. If you drive less than this, the actual cost option may yield a larger deduction. Just keep in mind the IRS requires you to maintain a log, which includes the mileage, time, date and purpose of each trip. Since this can be a tedious task, consider using an app, such as QuickBooks Self-Employed, which can automatically capture trip mileage, time and date for easy categorizing.
- Advertising and Marketing: Whether you advertise your real estate business using signs, ads, flyers or business cards, it’s all deductible from your taxable income. You can also deduct marketing production costs, such as design and writing fees, SEO optimization services, website design and hosting fees, video production and pay-per-click advertising.
- Home Office Deduction: Do you dedicate part of your home to your real estate work? If so, you are eligible for a home office deduction. As with vehicle deductions, the IRS offers a pair of options: a simplified method or the regular method. Unless you have a particularly large home office in a high-cost area, you will probably save more with the simplified method, which allows you to claim your office expense as a percentage of your mortgage or rent. You can also deduct any office supplies on the Schedule C portion of your tax form.
- Desk Fees: Whether you’re working with an independent broker or under a national franchise, you can deduct your desk fees. Just remember you cannot claim a home office deduction if you claim a deduction for brokerage desk fees.
- Fees, Insurance, Memberships and Licenses: MLS dues, professional memberships, state license renewals and other annual fees are all deductible. Errors and Omissions (E&O) insurance and general business insurance are also deductible, as are any real estate taxes necessary for your business. That said, while you can deduct a portion of professional membership costs, you can’t deduct any membership dues attributable to political advocacy and lobbying.
- Meals and Entertainment: If you are dining with clients or traveling on business, you can deduct 50 percent of your total meal expense. You can also claim these deductions if you are dining with other professionals while conducting business or generating leads. If the event is a well-advertised open house available to the general public, you can deduct 100 percent of the cost of food and refreshments.
- Travel and Professional Development: Whether it’s coaching, conferences, trade shows or classes, industry gatherings and continuing education courses are all deductible for real estate agents. If you travel to these events, you can deduct accommodation and transportation costs.
- Self-employed Healthcare: If you have medical insurance through a private plan, you can deduct co-pays, monthly premiums and other health care costs on your Schedule C. That said, to qualify for this, you cannot be eligible for an employer-provided group plan either through your spouse or another job. You will also need to itemize your deductions instead of claiming the standard deduction. With this in mind, it’s best to determine which method will save you the most money before deciding whether to claim your medical costs.
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