Is Real Estate School Tax Deductible?

The question of whether real estate school costs can be deducted from your taxes is a frequent point of confusion for aspiring and current agents alike. The answer is not a simple yes or no, as deductibility hinges on your professional status and the specific purpose of the education. For some, these costs represent a non-deductible entry fee into a new profession, while for others, they are a legitimate cost of doing business. The distinction between preparing for a new career and maintaining an existing one is the foundation of this analysis.

The New Trade or Business Rule

The primary regulation that governs the deductibility of educational expenses is the “new trade or business” rule. According to the IRS, you cannot deduct education expenses that are required to meet the minimum educational requirements for a new profession or that will qualify you for a new trade or business. The costs associated with pre-licensing real estate courses fall into this category because they are taken to qualify for the state licensing exam, which allows you to enter the profession for the first time.

This means the tuition for your initial real estate school, exam preparation courses, and the licensing exam fee itself are not deductible as business expenses. This rule applies even if you are already involved in the real estate industry in a different capacity. For example, a paralegal who specializes in real estate law cannot deduct the cost of courses to become a licensed agent because being an agent is considered a different trade. The IRS has held that the duties are substantially different, making the education a qualifying expense for a new business.

The rule’s application is based on what the education qualifies you to do, not whether you actually pursue the new trade or business. If you take pre-licensing courses and pass the exam but decide not to become a practicing agent, the costs remain non-deductible. The act of qualifying for the new profession is what triggers the limitation.

Deducting Continuing Education and Other Training

Once you are a licensed and practicing real estate agent, the rules surrounding educational expenses change significantly. The costs of education are deductible if they meet one of two criteria: they maintain or improve skills required in your current business, or they are required by law to keep your professional status.

Mandatory continuing education (CE) is a common deductible expense for real estate professionals. Most state licensing boards require agents and brokers to complete a certain number of CE hours to renew their licenses. Since this education is required by law to maintain your professional standing, the full cost of these courses is deductible. This includes tuition, registration fees, and any required materials like textbooks or software.

Beyond mandatory CE, other training that enhances your existing skills also qualifies. For instance, an agent might take specialized courses in commercial real estate, property management, or real estate finance to better serve their clients. An agent who takes courses to become a licensed broker may also be able to deduct those costs, as they are improving skills within their existing profession.

The Lifetime Learning Credit Alternative

For those taking initial pre-licensing courses, an alternative to a business deduction is the Lifetime Learning Credit (LLC). The LLC is a tax credit, which is a dollar-for-dollar reduction of your tax liability, making it potentially more beneficial than a deduction. The “new trade or business” rule does not apply to the LLC, making it an option for students in real estate school.

To be eligible, the student must be taking courses at an eligible educational institution to acquire job skills. The credit is calculated as 20% of the first $10,000 of educational expenses paid, for a maximum credit of $2,000 per tax return. This means if you paid $5,000 for your pre-licensing courses and books, you could receive a $1,000 tax credit.

However, the LLC is subject to income phase-outs, meaning the amount of the credit is gradually reduced and eventually eliminated for taxpayers with a modified adjusted gross income (MAGI) above a certain threshold. The credit is claimed by filing Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), with your federal tax return.

How to Claim Allowable Expenses

For self-employed real estate agents who incur deductible education expenses, the process of claiming them is straightforward. These costs are reported on Schedule C (Form 1040), Profit or Loss from Business. As a sole proprietor, you use this form to report your income and expenses from your real estate activities.

Qualifying educational costs are not listed as a separate, pre-printed category on the form. Instead, you will include these expenses on Line 27a, “Other expenses.” In the space provided on Part V of the form, you would write in a description such as “Continuing Education” or “Professional Training” and enter the total deductible amount. Keep records, including receipts, invoices, and course descriptions, to substantiate these expenses in the event of an IRS inquiry.

The rules are different for agents classified as W-2 employees. Following the Tax Cuts and Jobs Act of 2017 (TCJA), unreimbursed employee business expenses are no longer deductible for most employees on their federal tax returns. This means if you are an employee of a brokerage and pay for your own continuing education, you cannot deduct those costs.