As the tax filing deadline for 2023 draws near, it’s time to roll up your sleeves and chase down your eligible deductions for the year. Doing this right could be the difference of thousands of dollars. Itemizing your deductions for your real estate business is both the beauty and curse of running your own show. Make sure you zero in on every eligible deduction possible in order to get the most out of your business income. This information offers awareness of key tax deductions for a real estate business but is not tax advice. A critical caveat: make sure to consult with your tax expert for any and all tax decisions made for your business. Following is a list of how to make the most of tax deductions for real estate agents:
Here are 15 key tax deductions you should be aware of:
(1) SELF-EMPLOYMENT TAX DEDUCTION
According to Nerd Wallet, any earnings over $400 must be declared and you must pay a self-employment tax of 15.3% for Medicare and Social Security. The good news? You can claim half of the tax paid as a tax deduction.
(2) STATE & LOCAL TAXES (SALT)
State income tax, property taxes, and other local taxes are deductible up to a limit of $10,000.
(3) COMMISSIONS PAID TO OTHERS
Your commission is your income on which you will pay tax (see #1) but any sub-commissions you pay out — i.e., another agent or employee — are fully deductible.
(4) HOME OFFICE DEDUCTION
You can claim the home office deduction as a self-employed professional if your home office is your principal place of work and the space is used exclusively for business-related activities. This deduction covers the applicable portion of your rent, utility bills, insurance, maintenance, repairs, mortgage interest and depreciation.
(5) OFFICE SUPPLIES DEDUCTION
Office supplies can be claimed separately from the home office deduction. Think printer ink, office furniture, paper, staples, paper clips….essentially almost anything you use in your home office to conduct business.
(6) OFFICE SPACE RENT DEDUCTION
Do you rent space outside of your home to do business? This is typically a 100% eligible deduction.
(7) CAR DEDUCTIONS
Using your car to show property and run errands for your real estate business is a deductible expense. For 2023, the standard mileage deduction is $0.655 per mile driven for work. Or you can use the actual expense method in which you will need receipts to substantiate the amounts claimed.
(8) ADVERTISING & MARKETING EXPENSES
“Reasonable advertising expenses” are eligible deductions. What does this mean? This category includes things like marketing, online advertising, brochures, signs, and radio or television ads to a value that’s standard for the real estate industry. For example, some real estate agents use home warranties in their marketing packages as an incentive for their clients to list or buy with them. But again, check with your tax expert to make sure your marketing expenses fall into the “reasonable” category.
(9) PROFESSIONAL SERVICES
Service fees that can be claimed include things like professional valuations, legal fees, and inspections by engineers or construction professionals.
(10) MEALS & GIFTS
This deduction can trigger audits, so make sure you get it right. Networking and building relationships with clients, brokerages, and colleagues is an important part of becoming a successful real estate agent. In general, you can deduct 50% of relevant meal costs or 100% for business-related meals that were purchased from a restaurant.
You can fully deduct the cost of business gifts up to a maximum of $25 per client per year if they’re:
- Ordinary and necessary to your business
- Given to current or prospective clients
(11) EDUCATION, TRAINING, TRADE SHOWS, SEMINARS & CONVENTIONS
Networking events and continuing education costs are tax-deductible for real estate agents. You can generally claim 100% of the cost for conventions, trade shows, seminars, workshops and courses directly related to your work. Not deductible: Study for a career change or anything that is a basic requirement for working in your profession.
(12) PROFESSIONAL MEMBERSHIPS
If you have professional memberships that are directly related to your role as a real estate agent–like NAR membership and so forth–you can deduct these costs.
(13) HEALTH INSURANCE PREMIUMS
It’s possible to deduct your health premiums if you are posting a profit; in addition, you can claim eligible health expenses that exceed 7.5% of your adjusted gross income.
(14) CHARITABLE DONATIONS
Non-Cash Donations – you can deduct “fair market value.” You must be issued a receipt to do this.
Cash Donations – Generally you can claim up to 60% of your AGI (Adjustable Gross Income).
Charity Events – You can claim the difference between the fair value of the event and the total amount you paid. (I.e., if your event included a $250 dinner and the dinner was worth $50 you could write off $200.)
Learn more about charitable donations and how they apply to tax deductions here.
(15) TAX PREPARATION & ACCOUNTANT FEES
The IRS allows real estate agents to deduct the cost of small business tax preparation and advice.
(16) OTHER TAX SAVINGS AREAS
- File on time
- Increase retirement account contributions in a SEP or Simple IRA
- Add to 529 college savings
- Review your mutual funds and stock performance for “tax loss harvesting”
DATES TO BE AWARE OF
There are numerous tax deadlines depending on your business status (sole proprietorship, LLC, S-Corp, etc.). Following are some of the main tax deadlines to be aware of:
1 – Filing for S-Corporation filing is March 15, 2024.
2 – General tax filing deadline for individuals and LLCs filing as a sole proprietorship is Monday, April 15, 2024.
3 – For 2024, LLCs filing as a partnership must file Form 1065 by March 15 without an extension. With an extension, the deadline for filing is September 15, 2024.
4 – The deadline to file a tax extension as an individual or sole proprietorship is April 15, 2024 which makes the extended deadline to file October 15, 2024.
Learn more about tax deadlines here.
It costs money to make money and the IRS recognizes this. Tax deductions are a way of making taxation fairer for real estate agents and other self-employed individuals. The main caveat: Consult with your tax expert to make sure you are meeting deadlines, playing by the rules and getting the most out of your eligible deductions.*
*Please make sure to refer to your tax expert for any and all tax decisions.