What Business Expenses Can I Write Off as a Realtor?

As a real estate agent, understanding business deductions is fundamental to managing your financial health. Many realtors operate as independent contractors, responsible for their own taxes. Deducting legitimate business expenses can significantly reduce taxable income, allowing agents to retain more earnings and strengthen their financial foundation.

General Rules for Business Deductions

The Internal Revenue Service (IRS) sets criteria for deductible business expenses. For an expense to be deductible, it must be both “ordinary” and “necessary.” An ordinary expense is common and accepted in the real estate industry, meaning it is typical for real estate professionals to incur such a cost. A necessary expense is helpful and appropriate for your business, even if it is not strictly required.

Expenses that are personal, lavish, or extravagant are generally not deductible. The IRS emphasizes that business expenses should be directly related to the business activity and reasonable in amount. This framework ensures that deductions are legitimate and tied to the income-generating efforts of the real estate business.

Common Deductible Expenses

Real estate agents incur various deductible expenses in their daily operations, including common advertising and marketing costs like business cards, website fees, online ads, signage, and open house materials.

Professional fees and dues are deductible expenses. This category includes:
Real estate board dues
Multiple Listing Service (MLS) fees
Other association memberships
Licensing and renewal fees
Fees for legal and accounting services are also deductible.

Education and training expenses directly related to maintaining or improving real estate skills are deductible. This includes continuing education courses and seminars relevant to the real estate profession. Office supplies and equipment, such as computers, printers, stationery, and software subscriptions for customer relationship management (CRM) or design tools, are also common write-offs.

Business travel expenses, excluding daily commuting or local vehicle use, can be deducted when traveling away from home for business purposes. These expenses might include airfare, lodging, and meals incurred for out-of-town conferences, client meetings, or property viewings. Meals consumed while traveling for business are generally 50% deductible, provided they are not lavish or extravagant and have a clear business purpose.

Client entertainment and gifts also have specific deductibility rules. Business meals with clients remain 50% deductible in 2025, provided the taxpayer is present and business is discussed. However, direct entertainment expenses, such as tickets to sporting events or concerts, are generally not deductible. Business gifts are subject to a limitation of $25 per recipient per year, although incidental costs like engraving or shipping are not included in this limit.

Insurance premiums for professional liability (Errors & Omissions or E&O) and business property insurance are fully deductible. Utilities for dedicated business lines, such as a business phone or internet service used exclusively for professional activities, can also be deducted.

Home Office Deduction Rules

Many real estate agents utilize a home office, which can lead to a valuable tax deduction, provided specific IRS criteria are met. The space must be used “exclusively and regularly” for business. Exclusive use means the dedicated area cannot be used for any personal purposes, while regular use implies consistent and continuous business activity in that space.

The home office must also qualify as the “principal place of business” or be a place where the agent regularly meets clients. A home office can be considered a principal place of business if it is used exclusively and regularly for administrative or management activities and there is no other fixed location where substantial administrative or management activities are conducted. Even if an agent has other places where business is conducted, such as a broker’s office, the home office can still qualify if it meets these tests.

Two methods are available for calculating the home office deduction: the simplified option and the actual expense method. The simplified option allows for a standard deduction of $5 per square foot of the home office space, up to a maximum of 300 square feet, which translates to a maximum deduction of $1,500. The rate for 2025 is $6 per square foot, increasing the maximum deduction to $1,800. This method is simpler as it requires less record-keeping.

The actual expense method involves calculating the percentage of the home used for business and deducting that portion of various home expenses. Deductible expenses under this method include a percentage of mortgage interest, real estate taxes, utilities (like electricity, heating, water, internet, and phone), homeowners insurance, and depreciation of the home. Direct expenses related solely to the office space, such as repairs or decorating within that area, are fully deductible. Form 8829 is used to figure expenses under the actual expense method.

Vehicle Expense Rules

Vehicle expenses represent a significant deductible cost for real estate agents due to the nature of their work, which often involves extensive driving. Two primary methods exist for deducting these costs: the standard mileage rate and the actual expense method.

The standard mileage rate simplifies the deduction by allowing a set amount per business mile driven. For 2025, the standard mileage rate for business use is 70 cents per mile, an increase from the previous year. If this method is chosen, individual vehicle expenses such as gas, oil, repairs, insurance, and depreciation cannot be separately deducted. This rate accounts for both fixed and variable costs of operating a vehicle.

Alternatively, the actual expense method allows for the deduction of all actual costs associated with operating the vehicle for business purposes. These expenses can include gasoline, oil, repairs, insurance, vehicle registration fees, lease payments, tires, and depreciation. This method often requires more detailed record-keeping but can sometimes result in a larger deduction, particularly for vehicles with higher operating costs.

It is important to distinguish between deductible business mileage and non-deductible commuting mileage. Travel from home to a regular place of business is generally considered a non-deductible personal commute. However, mileage driven between client meetings, to showings, for property inspections, or to pick up business supplies is deductible business mileage.

Keeping Proper Records

Maintaining accurate and thorough records is paramount for substantiating all business deductions claimed by a real estate agent. The IRS requires documentation for all expenses to prove their legitimacy in case of an audit. Good record-keeping helps monitor business progress, prepare financial statements, identify income sources, and track deductible expenses.

Documentation should include receipts, invoices, bank statements, and mileage logs (whether digital or physical). For each expense, key information to capture includes the date, amount, vendor, and the specific business purpose. Digital solutions, such as accounting software and mobile apps for scanning receipts or tracking mileage, can significantly streamline this process and ensure records are easily retrievable.

The length of time records should be kept varies depending on the specific document and its purpose. Generally, tax records, including supporting documents for income, deductions, or credits, should be kept for at least three years from the date the tax return was filed. This period aligns with the IRS’s statute of limitations for most audits.

However, certain situations require longer retention periods. If there is a substantial understatement of income (more than 25% of gross income), records should be kept for six years. Records related to property, such as real estate or other assets, should be kept for as long as the property is owned and for at least three years after its disposal. For employment taxes, records must be kept for at least four years after the tax was due or paid, whichever is later. It is advisable to maintain records in an organized manner, whether physically or digitally, to ensure easy access and compliance.