How to File Taxes as a Real Estate Agent

Filing taxes as a real estate agent presents unique challenges, as most agents are considered self-employed. Unlike traditional employees who have taxes withheld, agents must track income, manage deductions, and handle tax payments independently. A well-organized approach ensures compliance with IRS requirements and maximizes deductions.

Determining Self-Employment Status

Most real estate agents operate as independent contractors rather than employees, affecting their tax responsibilities. The IRS considers agents self-employed if they control their schedule, cover expenses, and earn income primarily through commissions. This classification means they must handle their own tax payments, including self-employment tax, which covers Social Security and Medicare.

Brokerage agreements typically confirm this status, stating that agents are not employees and do not receive benefits like health insurance or retirement contributions. Instead, they receive a Form 1099-NEC, which reports their earnings for the year. Unlike W-2 employees, independent contractors must calculate and remit their own tax payments.

The IRS applies a three-factor test—behavioral control, financial control, and the nature of the relationship—to determine employment status. If a brokerage dictates work hours, provides extensive training, or enforces procedures beyond legal requirements, the agent may be classified as an employee, potentially leading to tax penalties and back payments.

Types of Income You Might Receive

Real estate agents earn income in various ways, each with specific tax implications. Since most are independent contractors, their earnings are reported on Form 1099-NEC, meaning taxes are not withheld automatically.

Commissions

Most agents earn income through commissions, paid upon the completion of a property sale. The brokerage typically receives the commission first, then distributes the agent’s share. Since commissions are self-employment income, they are subject to both federal income tax and self-employment tax, which is 15.3% in 2024.

For instance, an agent earning $50,000 in commissions would owe approximately $7,650 in self-employment tax, in addition to regular income tax. Setting aside a portion of each commission check helps cover these obligations. Since commissions fluctuate, maintaining a separate tax savings account ensures funds are available when payments are due.

Referral Fees

Agents can earn referral fees by connecting clients with other real estate professionals. These fees, typically 20% to 35% of the receiving agent’s commission, must be reported as self-employment income and are subject to self-employment tax.

For example, if an agent receives $5,000 in referral fees, this amount must be included in taxable income. Keeping records of referral agreements and payments is important in case of an IRS audit.

Broker Awards

Some brokerages offer financial incentives, such as performance-based bonuses or profit-sharing distributions. Cash bonuses are taxable and must be reported. If an agent receives a $10,000 bonus, it is subject to both income tax and self-employment tax.

Stock-based awards may have different tax implications, depending on whether they are immediately vested or subject to restrictions. Profit-sharing payments, if structured as distributions from an S corporation or partnership, may be taxed differently than regular commissions. Agents should review their brokerage agreements and consult a tax professional for proper reporting.

Tracking Deductible Expenses

Real estate agents incur many business expenses that can reduce taxable income. The IRS allows deductions for “ordinary and necessary” business expenses directly related to generating income.

One of the largest deductions is vehicle expenses, as agents frequently travel for property showings and client meetings. The IRS offers two methods: the standard mileage rate (67 cents per mile in 2024) or actual expenses, including fuel, maintenance, insurance, and depreciation. Keeping a mileage log or using a tracking app ensures accurate record-keeping.

Marketing and advertising expenses are another major deduction. Costs such as online listings, professional photography, business cards, social media promotions, and branded merchandise qualify. Website development and lead generation services are also deductible. Keeping receipts and invoices is essential for tax filing.

Office-related expenses, including office rent, supplies, and furniture, can also be deducted. Agents working from home may qualify for the home office deduction, which allows a portion of rent, utilities, and internet costs to be deducted based on the percentage of the home used exclusively for business.

Professional development and licensing costs, including continuing education courses, exam fees, and license renewals, are deductible. Membership dues for organizations like the National Association of Realtors (NAR) and subscriptions to industry publications also qualify.

Quarterly Estimated Taxes

Since real estate agents do not have taxes withheld, they must make quarterly estimated tax payments to the IRS. These payments cover both income tax and self-employment tax. Estimated tax payments are required if an individual expects to owe at least $1,000 in taxes for the year after subtracting withholding and refundable credits. Payments are due on April 15, June 15, September 15, and January 15 of the following year.

Calculating these payments requires estimating annual taxable income and applying the appropriate tax rates. The IRS provides Form 1040-ES, which includes a worksheet to help determine the correct amount. Many agents use the “safe harbor” rule, which avoids penalties if they pay at least 90% of their current-year tax liability or 100% of the previous year’s total tax bill (110% for high-income earners exceeding $150,000 in adjusted gross income). Adjusting quarterly payments based on actual earnings prevents overpayment or a large year-end tax bill.

Completing Relevant Tax Forms

Real estate agents must complete specific forms to report income and deductions accurately. Since most are independent contractors, they do not receive a W-2. Instead, they rely on forms such as the 1099-NEC and Schedule C.

Form 1099-NEC is issued by brokerages to agents who earn at least $600 in commissions or other payments during the year. This form reports total non-employee compensation, which must be included on the agent’s tax return. Agents should verify that reported amounts match their records to avoid IRS scrutiny.

Schedule C (Profit or Loss from Business) is used to report self-employment income and deduct business expenses. Agents must list total earnings and itemize deductions such as marketing costs, office expenses, and professional fees. The net profit from Schedule C is then transferred to Form 1040. Since self-employment tax is calculated separately, agents must also complete Schedule SE to determine their Social Security and Medicare contributions.

Handling Self-Employment Tax

In addition to income tax, real estate agents must account for self-employment tax, which covers Social Security and Medicare contributions. Unlike employees, who split these taxes with their employer, self-employed individuals pay the full amount.

For 2024, the self-employment tax rate is 15.3%, with 12.4% allocated to Social Security (on earnings up to $168,600) and 2.9% for Medicare. The IRS allows a deduction for half of this amount, which lowers adjusted gross income.

Maintaining Accurate Records

Proper record-keeping is essential for substantiating income, deductions, and tax payments. The IRS requires documentation supporting reported figures, and inadequate records can lead to penalties.

Income records should include commission statements, 1099-NEC forms, and bank deposit records. Expense documentation, such as receipts and invoices, should be kept. Using accounting software or expense-tracking apps simplifies this process.