How Real Estate Agents Can Save on 2019 & 2020 Taxes

real estate agent tax deductions

If finding deals and buyers wasn’t tricky enough, as a sole proprietor and real estate agent you also must navigate the tricky federal tax system.  Good news, you are not alone in this!

Below you’ll find a list of the top tax deduction rules specific to real estate agents and professionals.  As a bonus we’ve also included tax-saving tips that you can use to pass real estate tax savings on to your clients.

Click any of the links below to skip to the section that will walk you through the options, share which forms you may need and also help you learn how to save on your taxes as a real estate agent.  If you know someone who could benefit from this list, share it with them on Facebook or your other social media channel of choice.

Real Estate Agent Business Tax Deductions

Home Buyer and Seller Tax Programs

Real Estate Agent Business Tax Deductions

Home Office Expenses

If you use all or part of your home for business purposes, you may be able to deduct several related expenses, including insurance, internet costs, utilities, repairs, and even mortgage interest and depreciation.

To be eligible for this deduction, your at-home business practices must fit into one of two categories:

  • Regular and exclusive use, which means you use part of your home for business and nothing else (e.g., you wouldn’t be able to deduct home office expenses if your office also doubles as a den or family room).
  • Principal place of your business. In this case, even if you conduct business outside of your home, if you also conduct a significant amount of regular business inside your home (e.g., client meetings, patient visits, etc), you’ll be able to deduce home office expenses for the home or specific structures, like a garage or studio.

Potential tax form requirements:

  • Form 8829
  • Schedule C (Form 1040/1040-SR)
  • Schedule A (Form 1040/1040-SR)

Client Gifts

Under current tax code, business owners of any type can deduct up to $25 per client gift, even if the cost of that gift exceeds $25. In addition, the Tax Cuts and Jobs Act (TCJA) also now states that entertainment gifts can only be claimed as such if the giver does not attend the event with the recipient.

If you’re planning on deducting gifts, it’s important to keep detailed records of your purchases, including the date purchases and the intended recipient.

Potential tax form requirements:

  • Schedule C (1040/1040-SR) to claim as a sole proprietor
  • Schedule E (1040/1040-SR) to claim as partnership or s corp

Gas and Travel

Real Estate professionals often spend a significant amount of time on the road, and that can lead to plenty of travel-related expenses, including gas, mileage, parking fees, and car payments (lease or purchase), as well as repair and maintenance costs. To recoup some of these costs, realty professionals can deduct the following:

  • Standard mileage rate as set by the IRS. This is designed to cover expenses as they relate to wear and tear and gas. To claim this deduction, keep a travel log and be sure to record and all work-related travel.
  • Hotel stays, airfare, taxi fare, meals, etc. when traveling for a work-related reason, like a conference, convention, or other educational events.
  • Convention and conference registration fees

Potential tax form requirements:

  • Schedule C (Form 1040/1040-SR)
  • Profit and Loss From Business, Schedule C (Form 1040/1040-SR)

Business Expenses

Running a business requires supplies and equipment, and realtors can deduct the cost of those expenses. What constitutes a business expense? Typically anything that is considered to be a “cost of goods sold.”

That means that if the product or service you sell depends on any given item/service. That includes advertising and marketing related costs, like media purchases, photocopies, letterheads, etc.; MLS costs, cell phones, cameras, fax machines/copiers, laptops, software, and even car leases.

There are, however, other expenses that can’t be included, and that includes personal expenses as well as “capital expenses,” or expenses incurred as part of your business investment. That includes business assets, improvements, and start-up costs.

Potential tax form requirements

  • Schedule A (Form 1040/1040-SR)
  • Schedule C (Form 1040/1040-SR)

Advertising and Marketing Expenses

Word of mouth can be great, but many real estate professionals also rely on strategic marketing efforts to increase their client list. In addition, some advertising materials, like letterhead and business cards, are often a necessary part of creating a professional persona or brand.

Since these are considered an essential to business growth, realtors can typically deduct advertising and marketing costs as a business expense. This includes media purchases, photocopies, letterheads, signage, photography etc.

Continuing Education

Though the educational costs associated with getting your realtor licenses or other pre-employment activities are not deductible, you can deduct certain continuing education costs. Specifically, you can deduct educational costs if they fit into one of the following categories:

  • The educational expenses go towards improving or maintaining your professional skills
  • Your employer requires the educational measure to maintain your job.

Potential tax form requirements:

  • Schedule A (Form 1040/1040-SR)
  • Schedule C (Form 1040/1040-SR)
  • Profit or Loss From Business

License Renewal Fees

Annual fees, including license renewals required by the state, are tax-deductible. Note that this does not include your initial license fee, which is considered a start-up cost.

Potential tax form requirements:

  • Schedule C (Form 1040/1040-SR)
  • Profit or Loss From Business

PATH Act

The Protecting Americans from Tax Hikes (PATH) Act is a wide-reaching bill that reduced taxes for both families and small businesses. For realtors, this equates to tax breaks on relevant business purchases.

Under this bill, you can benefit from immediate tax deductions for large purchases, up to the full amount of the purchase. For instance, if you purchased a $30,000 car, you could deduct up to $25,000 for the tax year in which it was purchased. It also allows for the deduction of many of the expenses already covered above.

Potential tax form requirements:

There is no one tax form required for expenses that fall under PATH Act protections. Refer to IRS Publications 462 and 535 to determine what expenses are deductible and which tax forms you’ll need to file.

Commission Paid to Other Agents

If you own a real estate agency and are paying out commission to other agents, you can typically deduct those commission payments come tax time. How you claim those deductions depends on how your business type.

Potential tax form requirements:

  • Schedule C (1040/1040-SR) for sole proprietors or single-member LLCs
  • Form 1065 for partnerships or multi-member LLCs
  • Form 1120 for corporations

Office Space

Home Regardless of where your office is, you can typically deduct some of the costs associated with it. If you primarily work out of your home, then your office space deductions will likely be a portion of your mortgage or rent.

Similarly, if you rent or lease a space, then your deductions would be based on your monthly rent or lease payments. However, if you’re working with a franchise or independent broker you’re likely paying a fee to secure a desk in their building. In that case, you’ll be able to deduct your “desk fees”.

Potential tax form requirements:

  • Form 8829
  • Schedule C (Form 1040/1040-SR)
  • Schedule A (Form 1040/1040-SR)

Home Buyer and Seller Tax Programs

Mortgage Interest Deduction

Homeowners can also benefit from real estate-based deductions, specifically mortgage interest. This deduction includes interest paid on a primary mortgage as well as vacation and second home mortgages. Typically, homeowners can deduct all interest paid on their primary place of residence. However, interest deductions are limited for vacation or second homes.

As long as you’ve paid at least $600 in mortgage payments over a tax year, your lender is required to send you a Form 1098, which specifies how much interest you’ve paid during the tax year. It’s important to use this form if you’re deducting mortgage interest.

Potential tax forms requirements:

  • Schedule A (Form 1040/1040-SR)

Mortgage Interest Credit

Mortgage interest credits are available to homeowners who receive a mortgage credit certificate (MCC). These credits are typically used by lenders or brokers, and work to help low-income homebuyers purchase their first home. Mortgage interest credits lower the homeowner’s tax liability and therefore helps new homeowners better manage their monthly mortgage payment.These programs vary from state to state, but qualified homeowners can receive a tax credit of up to $2,000 a year.

Potential tax form requirements:

  • Form 8396

Selling Costs

There are many costs associated with selling a home, including title insurance, escrow fees, real estate agent and attorney fees, and pre-sale home inspections, just to name a few.

Deducting these costs can help clients offset some of the expenses associated with selling a home. If you’re working with a client who is about to sell their home, make sure they’re aware of these potential deductions and remind them to keep clear records of these costs and fees so that they can claim them in the tax year.

Potential tax form requirements:

  • Schedule A (Form 1040/1040-SR)

The right tax deductions can help you and your clients save money each year, and so it’s important to keep track of all your expenses over the year.

And though this is a list of some of the most popular tax deductions and subsequent IRS forms for real estate professionals, it’s important to work closely with your accounts or the IRS website to determine whether or not you or your clients qualify and what information and forms are required based on your unique circumstances.

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