What Can You Write Off as a Realtor?

As a real estate professional, understanding tax deductions is vital for managing your financial health. Real estate work involves various business expenses. Identifying and deducting these costs can lower your taxable income, optimizing your financial position as an independent contractor or business owner.

Understanding Deductible Expenses

For self-employed individuals like real estate agents, the Internal Revenue Service (IRS) permits deductions for “ordinary and necessary” business expenses. An ordinary expense is common and accepted in your industry. A necessary expense is helpful and appropriate for your business, though not indispensable. These expenses reduce your taxable income.

It is important to distinguish between personal and business expenses. Personal expenses, such as groceries or personal travel, are not tax-deductible. However, if an item serves both personal and business purposes, only the business portion can be deducted. For example, if a phone is used 70% for business, 70% of its cost may be deductible. General business expenses for realtors include office supplies like pens, paper, and printers, and utility costs such as phone and internet bills.

Businesses can also recover the cost of certain property over time through depreciation. This annual tax deduction applies to assets like machinery, equipment, buildings, vehicles, and furniture with a useful life of more than one year used in a business or income-producing activity. Depreciation accounts for wear and tear, deterioration, or obsolescence, allocating the asset’s cost over its useful life and reducing taxable income.

Specific Realtor Expenses

Realtors incur many expenses specific to their profession that are eligible for deductions. Fees paid for Multiple Listing Service (MLS) access and dues to real estate boards or associations are common deductible costs, considered necessary for real estate activities.

Continuing education expenses, including courses and workshops required for license renewal, are deductible if they maintain or improve skills related to your current real estate business. Professional licenses and fees, such as state real estate license fees and broker license fees, are also business expenses. Costs associated with lockboxes, keys, and electronic access devices like Supra keys, which are integral to property showings, are deductible.

Client entertainment expenses have specific IRS rules; only 50% of business meals are deductible, and gifts to clients are limited to $25 per person per year. Referral fees paid to other agents for business leads are deductible. Staging costs for properties to enhance their marketability are directly related to generating income and can be deducted. Marketing and advertising expenses specific to listings, such as professional photography, virtual tours, and open house signs, are fully deductible as they promote the business.

Vehicle and Travel Expenses

Given the mobile nature of real estate, vehicle and travel expenses are a major deduction area. Realtors have two methods for deducting vehicle costs: the standard mileage rate or actual expenses. The standard mileage rate deducts a set amount per business mile driven, plus tolls and parking fees.

The actual expense method allows deducting costs like gas, oil, repairs, insurance, vehicle registration fees, and depreciation or lease payments. When using this method, careful records of all vehicle expenditures are necessary. It is important to allocate these expenses between business and personal use based on mileage, as only the business portion is deductible.

Deductible business travel includes driving to show properties, meeting clients, attending closings, and visiting listing sites. Commuting between a home and primary business location is not deductible. Other travel expenses, such as public transportation fares for business, are also deductible.

Home Office and Technology Expenses

Many real estate professionals operate from a home office, making associated expenses deductible. To qualify for the home office deduction, the space must be used exclusively and regularly as your principal place of business. Exclusive use means the area is solely for business activities, not personal use.

Realtors can calculate the home office deduction using either the simplified or regular method. The simplified method allows a standard deduction per square foot of the home used for business, up to a maximum square footage. The regular method requires calculating actual home office expenses, such as a portion of rent or mortgage interest, utilities, home insurance, and repairs. Only the business percentage of these costs is deductible.

Technology expenses are also a common deduction for realtors. This includes costs for computers, printers, scanners, and specialized real estate software. Dedicated business phone lines and internet service are also deductible. If these items are used for both business and personal purposes, only the business portion can be claimed.

The Importance of Record Keeping

Accurate record keeping is vital for substantiating business deductions. The IRS requires proper documentation to support claimed expenses, which is essential for audit readiness and accurate tax preparation. Maintaining detailed records helps ensure compliance and maximizes eligible write-offs.

For each expense category, retain specific records. This includes receipts, invoices, and bank or credit card statements. For vehicle expenses, a mileage log detailing business trips, dates, destinations, and purposes is necessary, regardless of the deduction method. Home office deductions require documentation of the space’s square footage and calculations for prorated expenses.

Keep professional license renewal notices and continuing education course receipts. Records can be maintained using physical files, digital scans, or specialized accounting software. Maintain separate bank accounts and credit cards for business and personal finances to avoid commingling funds, simplifying expense tracking and reducing complications during tax time. Tax records should be kept for at least three years from the original return filing date or two years from the tax payment date, whichever is later.