What Can Realtors Write Off on Taxes?

As independent contractors, real estate agents and brokers often incur significant business expenses. Understanding which of these expenses qualify as tax deductions is essential for reducing taxable income. These deductions can encompass a wide array of costs, from daily operational needs to investments in professional growth. Proper tax planning helps realtors maximize savings and ensure tax compliance.

Common Business Deductions

Realtors can deduct many daily operational expenses considered “ordinary and necessary” for business. These include office supplies like paper, pens, and folders. Utilities for a dedicated business line, if separate from personal use, are also deductible.

Business insurance premiums, including errors and omissions (E&O) and general liability policies, are deductible. Professional fees paid to accountants or lawyers for business-related matters, such as contract review or tax preparation, also qualify. Business meals with clients or colleagues are 50% deductible, provided there is a direct business discussion and the expense is not lavish.

Bank fees associated with business accounts, such as monthly maintenance, transaction, and wire transfer fees, can be deducted. Overdraft fees on business accounts may also be deductible. Maintaining records, including receipts and invoices, is important for substantiating these deductions.

Vehicle and Travel Deductions

Vehicle expenses offer significant deduction opportunities for realtors who drive for business. Two methods exist for deducting these costs: the standard mileage rate and the actual expense method. The standard mileage rate, 67 cents per mile for business use in 2024, simplifies calculations by factoring in costs like fuel, maintenance, insurance, and depreciation. This method is preferred for its simplicity and reduced record-keeping.

Realtors can also use the actual expense method, which involves tracking and deducting the precise costs of operating their vehicle for business. This includes expenses such as gas, oil, repairs, insurance, lease payments, and depreciation. Using this method requires detailed records of all vehicle expenditures and a mileage log to determine the business-use percentage. While more complex, the actual expense method can result in a larger deduction, especially for those with higher vehicle operating costs or a luxury vehicle.

Deductible business travel includes costs for showing properties, attending closings, or traveling to real estate conventions. Expenses like airfare, lodging, and meals incurred during business trips are deductible. It is important to distinguish business travel from personal commuting, as the latter is typically not deductible.

Professional Development and Licensing

Maintaining professional qualifications involves several deductible expenses for realtors. State licensing and renewal fees are deductible. Continuing education (CE) courses required to maintain state licenses are also deductible, helping realtors stay current with industry trends, laws, and regulations.

Membership dues for professional organizations, such as the National Association of Realtors (NAR) and local real estate boards, are deductible. Subscriptions to industry-specific publications and professional journals that provide insights into the real estate market also qualify. Costs for new certifications relevant to the real estate profession, which maintain or improve existing skills, can also be deducted. However, education expenses that qualify an individual for a new trade or business, such as initial licensing courses, are typically not deductible.

Technology and Marketing Expenses

Technology and marketing expenses are significant and deductible costs for realtors. Website development and hosting fees are fully deductible, as websites serve as fundamental tools for attracting and retaining clients. Online advertising costs, including social media ads and search engine marketing campaigns, are fully deductible. Traditional advertising methods, such as print ads, flyers, and brochures, also qualify.

Subscriptions to customer relationship management (CRM) software and other real estate-specific tools, like multiple listing service (MLS) access fees and e-signature platforms, are deductible. Professional photography services for listing properties are also deductible. Business cards and other promotional materials are standard marketing expenses. The business portion of cell phone expenses can be deducted, requiring a clear distinction between personal and business usage.

Home Office Deductions

Realtors who use a portion of their home exclusively and regularly for business may qualify for the home office deduction. This deduction allows for the write-off of certain home expenses. The Internal Revenue Service (IRS) imposes criteria requiring the space to be used solely for business and as the principal place of business, or a place where clients regularly meet.

Two methods are available for calculating this deduction: the simplified option and the regular method. The simplified option allows a deduction of $5 per square foot of home office space, up to a maximum of 300 square feet, resulting in a maximum deduction of $1,500. This method streamlines record-keeping. The regular method permits a deduction for a proportionate share of actual home expenses, including mortgage interest, property taxes, utilities, insurance, repairs, and depreciation.

Under the regular method, the deductible amount is determined by the percentage of the home’s total square footage used for business. For example, if a 200-square-foot office is in a 1,000-square-foot home, 20% of these expenses would be deductible. While the regular method can lead to a larger deduction, it demands detailed record-keeping and calculation using IRS Form 8829.