Can Real Estate Agents Write Off a Car Purchase for Taxes?

Real estate agents rely heavily on their vehicles for work, whether driving to property showings, meeting clients, or attending industry events. Given the significant costs of vehicle ownership and use, many wonder if they can deduct a car purchase on their taxes to reduce taxable income.

Tax laws allow deductions for business-related vehicle expenses, but specific rules determine how much can be written off. Understanding these options helps maximize tax benefits while ensuring compliance with IRS regulations.

Distinguishing Business and Personal Use

The IRS requires a clear distinction between business and personal use of a vehicle for tax deductions. For real estate agents, this can be challenging since work often blends with daily life. Driving to a client meeting or an open house qualifies as business use, but commuting from home to an office or running personal errands does not.

Agents must track mileage and categorize trips accordingly. Business mileage includes travel between properties, staging appointments, and industry-related seminars. In contrast, driving to a grocery store or picking up children from school, even between work-related stops, is considered personal use.

For vehicles used for both business and personal purposes, agents must determine the percentage of business use by dividing business miles by total miles driven annually. For example, if an agent drives 20,000 miles a year and 15,000 are for business, the deductible portion is 75%. This percentage applies to eligible expenses when calculating deductions.

Deduction Approaches for Car Expenses

Real estate agents can deduct vehicle expenses using either the standard mileage rate or the actual expenses method. Each approach has advantages depending on total vehicle costs, business mileage, and record-keeping preferences. Depreciation may also be available for those who own their vehicle and use it for business.

Standard Mileage

The standard mileage deduction allows agents to write off a fixed amount per business mile driven. For 2024, the IRS set this rate at 67 cents per mile. This method simplifies tax reporting since it eliminates the need to track individual expenses like fuel, maintenance, and insurance. Instead, agents must maintain a mileage log recording business-related trips.

To use this method, the vehicle must be owned or leased, and the standard mileage rate must be chosen in the first year the car is used for business. Once selected, switching to the actual expenses method later may be restricted. The standard mileage rate already accounts for depreciation, so a separate deduction for vehicle value loss is not allowed.

For example, if an agent drives 15,000 business miles in a year, the deduction would be:
15,000 miles × $0.67 = $10,050

This method is often beneficial for those with lower vehicle expenses or who prefer a straightforward calculation without extensive documentation.

Actual Expenses

The actual expenses method allows agents to deduct specific costs associated with operating their vehicle for business. This includes fuel, maintenance, repairs, insurance, registration fees, lease payments, and loan interest for financed vehicles. Unlike the standard mileage rate, this approach requires detailed record-keeping.

To determine the deductible amount, agents calculate the percentage of business use and apply it to total vehicle expenses.

For example, if an agent incurs the following annual costs:
– Gas: $3,000
– Repairs & Maintenance: $1,200
– Insurance: $1,500
– Registration & Fees: $300
– Loan Interest: $800

Total vehicle expenses: $6,800

If the agent’s business use percentage is 75%, the deductible amount would be:
$6,800 × 75% = $5,100

This method is often more beneficial for those with high vehicle expenses but requires meticulous tracking of receipts and records.

Depreciation

For agents who purchase a vehicle and use it for business, depreciation can be deducted to account for the loss in value over time. The IRS allows depreciation under the Modified Accelerated Cost Recovery System (MACRS), which typically spreads deductions over five years for passenger vehicles. However, annual limits apply to prevent excessive write-offs.

For 2024, the maximum first-year depreciation deduction for a car placed in service that year is $20,200 if bonus depreciation is claimed. Without bonus depreciation, the limit is $12,200. These limits apply to vehicles that are not classified as heavy SUVs, trucks, or vans, which may qualify for Section 179 expensing or 100% bonus depreciation if they exceed 6,000 pounds in gross vehicle weight rating (GVWR).

For example, if an agent purchases a $40,000 vehicle and uses it 75% for business, the first-year depreciation deduction (without bonus depreciation) would be:
$12,200 × 75% = $9,150

Depreciation deductions continue in subsequent years but decrease annually based on IRS-set limits. Agents planning to sell or trade in their vehicle should also consider potential recapture rules, which may require reporting part of the depreciation as taxable income.

Documenting Vehicle Expenditures

Proper documentation is essential for maximizing deductions and ensuring compliance with IRS regulations. Without accurate records, agents risk losing deductions if audited. The IRS requires all business expenses to be substantiated with clear, contemporaneous documentation—records should be created at the time of the expense rather than reconstructed later.

A well-maintained logbook is one of the most reliable ways to track deductible vehicle expenses. Digital tools such as mileage-tracking apps provide automated record-keeping, reducing errors and ensuring accuracy. These apps use GPS to log trips, categorize them as business or personal, and generate IRS-compliant reports. Regardless of the method used, logs should include the date, starting and ending locations, purpose of the trip, and total miles driven.

Receipts and invoices support deductions beyond mileage. Fuel purchases, maintenance costs, insurance premiums, and registration fees should all be documented. Credit card statements alone are insufficient, as they do not provide itemized details. Keeping digital copies of receipts through accounting software or cloud storage ensures easy retrieval if needed for tax filing or an audit.

Bank and credit card statements serve as secondary documentation, helping to verify expenses. However, they should be supplemented with detailed records linking each transaction to a specific business purpose. For leased vehicles, maintaining a copy of the lease agreement is necessary to substantiate payments and confirm whether certain fees, such as early termination charges, are deductible.