As a real estate agent, you are operating your own business, meaning that you have a variety of demands on you, like marketing, scheduling, and even taxes. And like any business owner, paying a fair amount of taxes is your responsibility, but the tax laws provide numerous opportunities to lower your tax burden through various write-offs.
As an agent, you operate as an independent contractor, meaning you are responsible for your expenses, including office supplies, marketing, and licensing fees.
However, not all expenses are created equal regarding tax deductions.
So if you’re wondering what expenses you can write off as a real estate agent, this guide will help you keep more money in your pocket so that you’re aware and understand which expenses you should write off.
What Does It Mean To “Write Off” Expenses For Taxes
One quick note: all the information I provide here is best practices and is not meant to imply that I am providing legal or financial advice; these are best practices.
A tax write-off, also known as a tax deduction, is an expense that can be subtracted from your income to calculate your income tax due to the IRS. Write-offs lower your taxable income and save you money.
For example, if you earned $69,000 in income last year and had $15,000 in business-related expenses such as marketing, training, and transportation, you can subtract this from the $69,000. This means you’ll be taxed on $55,000 of income instead of $69,000, resulting in lower taxes owed.
Most expenses for your real estate business are tax-deductible as long as they meet specific criteria.
The criteria are simple:
- Ordinary and necessary
- Directly related to your business
- A reasonable amount
It’s essential to keep track of every penny you spend on your business and have proper documentation to support your write-offs. A yacht, for instance, would not qualify as an ordinary and necessary real estate business expense, while a car solely for real estate would be a logical deduction.
- Commissions You Pay Out
- Home Office “Rent”
- Office Supplies
- Membership And Desk Fees
- Training And Education
- Coaching And Other Professional Services
- Marketing And Advertising
- Meals
- Vehicle And Transportation Expenses
- Technology And Equipment Costs
If you’re curious about what expenses you can write off as a real estate agent, consider this guide your best resource for the top 10 things to deduct from your real estate business.
1. Commissions You Pay Out
As an agent, there may be times you have to pay a commission to other agents or employees for their services. This commission can be an essential source of income for many businesses, but it can also add up quickly, causing taxes and other expenses to increase.
That’s why it’s essential to know that commissions paid are generally fully deductible business expenses.
When reviewing your financial records, ensure that all the commissions you pay out are accounted for and listed correctly on your tax returns. This way, you’re entitled to receive full deductions so that your taxes don’t increase unnecessarily.
Deducting the right amount of commission will also ensure that you will only pay taxes or take advantage of any significant deductions. It's always best practice to keep close track of what you're paying in commissions and when they're due to maximizing the benefits on your taxes.
2. Home Office “Rent”
The home office deduction allows many real estate agents to deduct expenses that were otherwise not deductible. This includes any direct or indirect costs associated with using a home office, such as a portion of the rent, utilities, heating, and internet services.
This deduction can be taken either through standard or simplified methods, which are based on a percentage of total home expenses.
The standard method also allows you to deduct depreciation and other related expenses. In contrast, the simplified method is often more attractive as it maximizes tax deductions by applying a single rate.
In order to qualify for this deduction, your home office must be used regularly and exclusively as your principal place of business. To distinguish between what qualifies for the deduction and what does not, areas most commonly utilized for work, such as an office room or desk, will usually have valid claims.
However, something like a bed, porch swing, or kitchen table would not qualify as they do not meet this criterion and, therefore, cannot be used for their intended purpose.
3. Office Supplies
Claiming office supplies and equipment as a business deduction is essential to ensuring that you can stay profitable and don’t pay too much in taxes.
These can be commonly available items such as stationery, photocopies, and consumables; to more expensive purchases such as furniture, fax machines, copiers, computers, or telephone systems – they can all be expensed in full or depreciated over time.
Business owners are also eligible to deduct the cost of phone bills, specifically those that relate to different landline numbers used exclusively for business purposes.
And if you use only a cell phone for your business operations, then you can deduct the portion of the phone bill corresponding to business-related expenses.
Knowing what type of office supplies and equipment are necessary to run your real estate business optimally is critical to taking full advantage when it comes time for deductions.
Be sure to record all the eligible expenses under specific categories to get all the amounts that could give you considerable tax savings down the road.
4. Membership And Desk Fees
Desk fees can be a hefty expense for you as an agent when you choose to work as an independent real estate agent or broker.
Fortunately, those fees are tax deductible, making that cost more manageable for agents and brokers.
When claiming desk fees, those hanging their license under a national franchise should know that the deduction might come with operating rules. For example, when you deduct brokerage desk fees, you will no longer be eligible for the home office tax deduction.
It is important to note that not all expenses related to your desk are eligible for deduction—so always keep accurate financial records of your business operations to calculate any deductions being appropriately claimed.
Additionally, make sure that any deductions taken are indicative of the industry and reasonable ones, as these will ultimately be subject to audit if deemed too high by the IRS.
5. Training And Education
As an agent, one of the most important things to stay on top of is new developments in the market, regulatory changes, and technology that will simplify your job. And continuing education is a great way to stay competitive in the ever-changing world of real estate.
Keeping up with the latest trends and developments can give you an edge over your competition, but only if you take advantage of this potential by taking training courses and signing up for CE that will boost your business.
The best part is that many costs associated with these courses may be tax deductible, meaning more money available for future endeavors.
The IRS does require specific criteria to be met to qualify for any deductible expenses related to educational or training courses.
First, the training cannot help qualify you for a different trade or business than what you currently specialize in.
Additionally, if the purpose of obtaining this training is meeting minimum educational requirements for something like licensure, it will not be valid either.
However, registration fees, materials purchased, and the associated travel costs may all be deductible depending on individual circumstances, making keeping up with industry standards much more financially viable.
There are a lot of different types of courses you can consider taking. Still, real estate-specific courses are often the most beneficial, as they equip agents with up-to-date information on current regulations and related fields such as home appraisals, marketing, mortgages, and more.
As a real estate agent, you can also take continuing education (CE) classes to stay licensed or keep up with changing real estate laws.
Other possible educational tax write-offs include books on real estate investments or purchases and attending seminars or paid training sessions or classes.
By taking advantage of these educational opportunities, you can stay competitive in the market and further increase your value to your clients, boosting your revenue potential.
6. Coaching And Other Professional Services
As an independent contractor, being a real estate agent can be complicated, with multiple tasks having to be completed simultaneously.
And as you know, the industry is a complex field with many regulations and tax laws.
As a result, many real estate agents seek out coaching and other professional services to improve their knowledge and skills.
A coach will teach you time management strategies like the Pomodoro Method and Time Blocking to help maximize your productivity and help you with goal planning and implementing systems to optimize your results.
The good news is that many of these services can be tax deductible. This includes expenses related to attending seminars, buying books or online courses, and paying for coaching or consulting services.
Real estate professionals can save money on taxes by claiming these deductions while improving their field expertise.
7. Marketing And Advertising
The lifeblood of a real estate business is its leads, and as an agent, you’ll spend more time and money on marketing and prospecting than on any other specific task.
Marketing and advertising expenses can add up quickly and significantly drain limited resources. And this one answers the question, “What expenses can you write off as a real estate agent?”
Fortunately, the Internal Revenue Service's deduction for marketing and advertising costs can offset some of these expenses.
Digital and online advertising costs are quickly becoming the largest area of spending. In contrast, other areas, such as marketing materials, staging, photography, or signage, can also be deducted under this allowance.
The best part is that there are no strict guidelines governing what qualifies as marketing and advertising expense; any costs related to promoting your business or product line are eligible for the deduction.
Thanks to the IRS's generous deductions for marketing and advertising expenses, you have more wiggle room to invest in promotional efforts to reach new clients or grow relationships with existing ones.
With clever planning and strategic budgeting, many real estate agents have found success with one-time promotional campaigns or more significant investments in building their personal brand.
In either case, the IRS's marketing and advertising expense deduction remains a powerful tool in helping businesses maintain their financial footing through growth periods by providing them with investment returns.
8. Meals
Who doesn’t like to dine out, primarily when it can be written off as a deduction?
Regarding real estate-related deductions, meals can be deducted in certain circumstances.
First, you can deduct some or all of your meal expenses if you are traveling on business.
This is a great way to reduce the total cost of your trip while still receiving the benefits of a good dinner or lunch when away from home.
However, this deduction only applies if the meal was necessary for business purposes, meaning it was not just leisurely dining with friends.
The other situation in which you can demonstrate meals as a deduction is when you are having dinner or brunch with clients or professionals to conduct business or generate referral business.
Generally speaking, these meals need to be related in some way to work, and a receipt should be kept in case there are any questions from an auditor.
9. Vehicle And Transportation Expenses
As a real estate agent, you’re often bouncing around from one viewing to your office to another appointment and everywhere in between and depending.
With the cost of gas, regular maintenance, and extensive travel for client meetings, showings, and property inspections, vehicle expenses can quickly add up.
Fortunately, these costs are deductible for an agent who is self-employed or working as an independent contractor.
One way to deduct these expenses is by only tracking your actual expenses, such as fuel costs, oil changes, or repairs.
However, if you prefer a more straightforward approach, you can use the IRS’s standard deduction rate, which assigns a certain amount to each mile driven for business purposes.
In this case, you should keep a detailed log of your business miles to substantiate your deduction when filing taxes. In addition to gas and car maintenance fees, other transportation-related deductions include parking fees and tolls related to work-related travel.
All in all, there are plenty of ways for real estate agents to save money on transportation expenses through proper record keeping and utilization of deductions from the IRS.
10. Technology, Subscriptions, And Equipment Costs
The real estate industry relies heavily on technology to stay competitive. From scheduling viewings to process payments, many everyday tasks associated with managing a property require digital tools.
Additionally, staying digitally connected with clients and other industry professionals is essential in today's market.
Luckily, real estate agents can deduct the costs of business-related technology and equipment they use to maintain their real estate activities. This includes computers, smartphones, tablets, software subscriptions, printers, scanners, internet access fees, and phone services.
These deductions are especially beneficial for real estate agents as they can amount to hundreds or even thousands of dollars in cost savings each year.
As a real estate agent, you have to be able to juggle a lot of different tasks at the same time. One area that can help you save time and money is hiring some outside help, like a real estate coach that can help guide you and show you systems to make your operations more efficient.
A good real estate coach will also help you stay on tasks like scheduling appointments and encourage you to delegate tasks you should hire somebody to handle, like your taxes. The best part is that in both these instances, hiring a coach and a bookkeeper is tax deductible, helping you save money and become more productive.
