How Much Taxes Do Real Estate Agents Pay?

Real estate agents operate in a unique tax environment, distinct from that of traditional employees. As independent contractors, they are considered self-employed by the Internal Revenue Service (IRS), directly responsible for managing their tax obligations. This status significantly impacts how their income is taxed and what deductions they can claim. Understanding these tax rules is essential for real estate professionals.

Understanding Your Income and Expenses

Real estate agents primarily earn income through commissions. Other income sources can include referral fees and performance-based bonuses. These earnings are reported to agents on Form 1099-NEC, Nonemployee Compensation, if payments from a single payer meet or exceed $600 during the tax year.

As self-employed individuals, real estate agents can deduct legitimate business expenses, which reduce their taxable income. Common deductions include mileage and vehicle expenses; for 2025, the standard mileage rate for business use is 70 cents per mile. Agents can choose between this standard rate or calculating actual expenses, tracking costs like gas, oil, repairs, and depreciation.

Marketing and advertising expenses cover costs like website maintenance, signage, flyers, and professional photography. Office expenses, such as rent, utilities, and supplies, are deductible. Professional development costs, including continuing education, licensing fees, real estate board dues, and Multiple Listing Service (MLS) fees, are also deductible. Fees paid to legal or accounting professionals are also deductible business expenses.

Real estate agents who use a portion of their home exclusively and regularly for business may qualify for the home office deduction. This deduction requires the space to be the principal place of business or used to meet clients regularly. Taxpayers can choose between a simplified option, allowing a deduction of $5 per square foot up to 300 square feet for a maximum of $1,500, or the regular method. The regular method involves calculating the actual business portion of expenses like mortgage interest, property taxes, utilities, and depreciation.

Brokerage fees and splits paid to the real estate brokerage are subtracted from the agent’s gross commissions to determine their net income. This net income is the figure used for tax calculations.

Calculating Your Federal Tax Liability

Real estate agents face two primary federal taxes: self-employment tax and federal income tax. Self-employment tax covers Social Security and Medicare contributions for self-employed individuals, mirroring the taxes paid by employees and employers. The self-employment tax rate is 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare. This tax applies to 92.35% of net self-employment earnings.

For 2025, the Social Security portion of the self-employment tax applies to the first $176,100 of net earnings. There is no income limit for the Medicare portion. Half of the self-employment tax paid is deductible as an adjustment to income when calculating federal income tax. Agents calculate their self-employment tax using Schedule SE (Form 1040), Self-Employment Tax.

Federal income tax is calculated on the agent’s net taxable income after deducting business expenses and the allowable portion of self-employment tax. The federal income tax system is progressive, meaning higher income levels are subject to higher tax rates. Taxpayers can reduce their taxable income by taking either the standard deduction or itemizing deductions, whichever results in a larger reduction.

Real estate agents may be eligible for the Qualified Business Income (QBI) deduction, also known as the Section 199A deduction. This deduction allows eligible taxpayers to deduct up to 20% of their qualified business income. The QBI deduction is subject to income limitations and other rules, depending on the taxpayer’s total taxable income and the nature of their business. For 2025, if a single filer’s total taxable income is below $197,300 or joint filers’ income is below $394,600, they may qualify for the full 20% deduction.

Making Estimated Tax Payments

Real estate agents do not have taxes withheld from their commission income, so they are required to pay estimated taxes throughout the year to the IRS. Failing to make these periodic payments can result in penalties and interest.

To determine their estimated tax liability, agents can base calculations on their previous year’s income and deductions or project current year’s expected income and expenses. The IRS provides Form 1040-ES, Estimated Tax for Individuals, which includes a worksheet to assist in calculating these payments. Estimate conservatively to avoid underpayment penalties.

Estimated tax payments are due quarterly, with specific deadlines:
April 15 for income earned January 1 to March 31
June 15 for income earned April 1 to May 31
September 15 for income earned June 1 to August 31
January 15 of the following year for income earned September 1 to December 31

If a due date falls on a weekend or holiday, the deadline shifts to the next business day.

Agents can make estimated tax payments directly from their bank account using IRS Direct Pay, through the Electronic Federal Tax Payment System (EFTPS), or by mail with Form 1040-ES. EFTPS allows taxpayers to schedule payments in advance, offering greater control over their payment schedule. While quarterly payments are standard, agents can also make more frequent payments, such as weekly or monthly, as long as the cumulative amount paid by each quarterly deadline is sufficient.

State and Local Tax Obligations

Beyond federal taxes, real estate agents must consider state and local tax obligations, which vary significantly by location. Most states impose an income tax, and agents must factor this into their tax planning. These state income tax laws often have their own rules for calculating taxable income, available deductions, and tax rates.

Some localities may impose business licenses, gross receipts taxes, or other fees on self-employed individuals and businesses. Agents should research and understand the specific tax requirements of their state and local areas.