Are MLS Fees Tax Deductible for Real Estate Agents?
Understand the tax deductibility of your MLS fees. This guide clarifies how an agent's employment status determines their ability to claim this key expense.
Among the various costs incurred, Multiple Listing Service (MLS) fees represent a recurring outlay for real estate agents. The MLS provides the database of property listings that agents rely on to serve both buyers and sellers. Understanding the tax implications of these fees directly impacts an agent’s net income.
The “Ordinary and Necessary” Business Expense Test
The Internal Revenue Service (IRS) permits the deduction of business expenses that meet a two-pronged test: they must be both “ordinary and necessary.” An ordinary expense is one that is common and accepted in your specific trade or business. For real estate agents, paying for access to the MLS is a near-universal practice, making it a clear example of an ordinary expense. Without this access, an agent’s ability to view listings, market properties, and analyze market data would be severely hampered.
A necessary expense is one that is helpful and appropriate for your business. For a real estate agent, MLS access is certainly helpful and appropriate for conducting business. It is the primary platform for cooperating with other agents and facilitating transactions. Because MLS fees meet both the “ordinary” and “necessary” criteria, they are considered a deductible business expense by the IRS.
Deductibility for Different Employment Statuses
The ability to deduct MLS fees largely depends on a real estate agent’s employment classification. The vast majority of real estate agents operate as independent contractors, often receiving a Form 1099-NEC, Nonemployee Compensation, from their brokerage. For these self-employed individuals, MLS fees are fully deductible as a business expense. They are subtracted from the agent’s gross income, reducing their overall taxable profit.
This contrasts with the rules for agents classified as W-2 employees. Following the passage of the Tax Cuts and Jobs Act of 2017 (TCJA), the deduction for unreimbursed employee business expenses was eliminated for federal tax purposes. This means that if an agent is a W-2 employee of a brokerage and pays for their own MLS fees without reimbursement, those costs are not deductible on their federal tax return.
How to Claim the Deduction
For eligible independent contractors, the process of claiming the deduction for MLS fees is done on Schedule C (Form 1040), Profit or Loss from Business. The total amount of MLS fees paid during the tax year would be entered in Part II, which is designated for expenses. Specifically, MLS fees can be categorized under “Dues and subscriptions.” This line item is intended for costs associated with professional organizations and trade-specific service subscriptions, which accurately describes the nature of MLS access. Alternatively, if an agent prefers a more detailed breakdown, the fees can be listed under “Other expenses,” with a specific description like “MLS Fees.”
Recordkeeping for Tax Audits
Recordkeeping is important to substantiate the deduction for MLS fees in the event of an IRS audit. Agents must maintain clear documentation that proves the expense was paid and was for business purposes. The most direct evidence includes the invoices provided by the local real estate board or MLS provider. Proof of payment can take the form of canceled checks, bank account statements, or credit card statements that show the transaction clearing. The IRS recommends retaining records that support items on a tax return for at least three years from the date the return was filed.