What Can Real Estate Agents Write Off?

As a self-employed real estate agent, understanding and utilizing tax write-offs is a key part of financial management. These deductions directly reduce your taxable income, which can lead to a lower tax liability. By tracking and claiming eligible business expenses, real estate professionals can retain more of their earnings.

Understanding Business Deductions

For an expense to be deductible, the Internal Revenue Service (IRS) requires it to be both “ordinary” and “necessary.” An “ordinary” expense is common and accepted in the real estate industry, such as professional membership dues. A “necessary” expense is helpful and appropriate for your business.

It is important to distinguish between business and personal expenses, as only costs directly related to your real estate activities qualify for deductions. Expenses must have a clear connection to generating income or profits within your business.

Common Operating Expenses

Marketing and advertising costs, such as signage, online advertisements, website development, and business cards, are deductible. These expenses are ordinary and necessary for promoting your services and attracting clients. Office supplies and equipment, including printer ink, paper, pens, computers, and specialized software like Customer Relationship Management (CRM) tools or e-signature platforms, are also deductible.

Professional fees and dues, such as Multiple Listing Service (MLS) fees, real estate board memberships, lockbox fees, and licensing fees, are deductible. Continuing education courses required to maintain your real estate license are also eligible. Professional services, including legal and accounting fees, are deductible.

Business insurance premiums, including general liability, professional liability (Errors & Omissions), and commercial property insurance, are deductible. Communication expenses, such as business phone and internet services, are also deductible.

For client entertainment, meals are generally 50% deductible if they are ordinary and necessary and not lavish. Business gifts have a specific limit: you can deduct no more than $25 of the cost of gifts given directly or indirectly to each person per tax year.

Vehicle and Travel Expenses

Real estate agents frequently use their vehicles for business, making vehicle expenses a significant deduction. There are two primary methods for deducting these costs: the standard mileage rate and the actual expenses method.

For 2024, the standard mileage rate for business use is 67 cents per mile, increasing to 70 cents per mile for 2025. To use this method, you must track your business miles accurately. If you choose the standard mileage rate for a leased vehicle, you must use it for the entire lease period.

Alternatively, you can deduct the actual expenses of operating your vehicle. This method allows you to include costs such as gas, oil, repairs, insurance, vehicle registration fees, and depreciation or lease payments.

Beyond local vehicle use, business travel expenses away from your tax home are deductible. This applies when you are away for longer than an ordinary workday and need to sleep to meet work demands. Deductible travel costs include airfare, train or bus fares, lodging, and meals, which are generally subject to a 50% deduction limit. Other deductible travel expenses can include taxi fares, baggage fees, and business calls.

Home Office Deductions

Many real estate agents operate from a home office, which can lead to valuable tax deductions. To qualify, the space must be used “exclusively and regularly” for business. The home office must also be your principal place of business, or a place where you regularly meet clients.

There are two methods for calculating the home office deduction. The simplified option allows a deduction of $5 per square foot for the business-use portion of your home, up to a maximum of 300 square feet, resulting in a maximum deduction of $1,500.

The regular method involves calculating the actual expenses attributable to your home office. This includes a portion of your mortgage interest, rent, utilities, homeowner’s insurance, and depreciation. The deductible amount is based on the percentage of your home’s total square footage used for business.

Record Keeping and Claiming Deductions

Accurate and thorough record-keeping is paramount for substantiating all business deductions. Real estate agents should maintain detailed records for every expense, including receipts, invoices, bank statements, and mileage logs for vehicle use. These records are essential for proving the legitimacy of your deductions in case of an IRS audit.

Most self-employed business expenses are reported on Schedule C, Profit or Loss from Business (Sole Proprietorship), which is filed with Form 1040. Schedule C is used to report your business income and expenses, determining your net profit or loss from real estate activities. This net profit or loss then flows to your personal income tax return, Form 1040.

As a self-employed individual, you are generally required to pay estimated taxes throughout the year. These quarterly payments cover both your income tax and self-employment taxes, which include Social Security and Medicare contributions. Estimated tax payments are due on April 15, June 15, September 15, and January 15 of the following year. You generally need to make estimated tax payments if you expect to owe at least $1,000 in taxes when filing your return.