The Top 15 Tax Deductions for Real Estate Agents
Real estate agents have the possibility of earning an unlimited amount of income through commissions, but a lack of knowledge about which business expenses are tax-deductible can cut into those earnings significantly.
For 2023, there are 15 key tax deductions that you can take for your real estate business—covering deductions on Schedule 1, Schedule A, and Schedule C. Depending on the expenses incurred during the previous tax year, you could be looking at a difference of several thousand dollars in tax!
Top Real Estate Agent Tax Deductions for 2023
For 2023, realtor tax deductions are similar to those offered in previous years. Changes include:
The standard charitable donation deduction of $600 was removed. For the 2022 tax year, all charitable deductions must be itemized.
For medical expenses incurred in 2022, you can deduct medical expenses above 7.5% of your adjusted gross income (AGI).
There were no stimulus payments in 2022, so most taxpayers can expect a smaller tax return in 2023.
If your property deals and expenses for the past financial year have been especially complex or you need orientation regarding your small business taxes, engaging real estate accounting services will ensure your deductions are right on target.
1. Self-Employment Tax Deduction
If you receive more than $400 in the form of commissions and other sources of income that aren't formal wages or salary, you must declare these earnings on your tax return and pay a self-employment tax of 15.3% for Medicare and Social Security.
The good news about the self-employment tax is that you can claim half of the tax paid as a tax deduction, as this half represents the employer's share in a traditional employment situation. List this deduction on Line 15 on Schedule 1 to reduce your taxable income by the respective amount.
2. State and Local Taxes
State income tax, property taxes, and other local taxes are deductible up to a limit of $10,000.
Claim your state and local tax payments on lines 5-6 of Schedule A.
Claim taxes paid on business assets (real estate and property), taxes withheld on behalf of employees, and sales tax paid on business income on line 23 of Schedule C "Taxes and licenses."
3. Commissions Paid to Others
As a real estate agent, you receive commissions for successful real estate sales. However, if you pay a sub-commission to another agent or employee to help you make a sale, the amount of this sub-commission is fully deductible as a business expense. To claim commissions as tax deductions, enter the applicable amount on line 10 of Schedule C.
4. Home Office Deduction
As a self-employed professional, you can take the home office deduction 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.
To take the home office deduction, you can use the simplified method (line 30 on Schedule C) or the actual expense method (line 30 on Form 8829). The standard home office deduction for the 2022 tax year is $5 per square foot to a maximum of 300 square feet.
5. Deduction for Office Supplies
Office supplies are deductible business expenses that are claimed separately from the home office deduction. This category includes items like paper, envelopes, ink, staples, paper clips, shredders, desktop printers, and postage. While these costs can seem insignificant, over time, they can add up to $1,000 or more. Real estate agents can claim office expenses on line 18 of Schedule C.
6. Office Space Rent Deduction
If you rent office space outside of your home for yourself or your employees, you can claim 100% of the cost of rent as a necessary cost of doing business. This deduction is located on line 20b of Schedule C.
7. Car Deductions
Driving to and between properties is a necessary part of conducting a real estate business, and as long as the miles are a necessary part of your work (and not simply the commute between work and home), you can claim this mileage as a business expense.
For 2023, the standard mileage deduction is $0.655 per mile driven for work and you can claim the deduction on line 9 of Schedule C. If you opt to use the actual expense method, you will need receipts to substantiate the amounts claimed.
8. Advertising Expenses
Advertising is a necessary cost of running a real estate business, and you can deduct "reasonable advertising expenses" on line 8 of Schedule C. This category includes things like online advertising, brochures, signs, and radio or television ads to a value that’s standard for the real estate industry.
9. Professional Services
Before advertising a property for sale, realtors often pay for things like professional valuations, legal fees, and inspections by engineers or construction professionals. As these are necessary business costs, you can claim these service fees as tax deductions on line 17 of Schedule C.
10. Meals
Networking and building relationships with clients, brokerages, and colleagues is an important part of becoming a successful real estate agent. For the 2022 tax year (your 2023 tax return) you can deduct 50% of relevant meal costs or 100% for business-related meals that were purchased from a restaurant on line 24b of Schedule C. Make sure to deduct business meals the right way to avoid triggering an IRS audit.
11. Education, Training, Trade Shows, Seminars, and Conventions
Networking events and continuing education costs are tax-deductible for real estate agents. You can generally claim 100% of the cost for:
Conventions and trade shows that serve a legitimate business purpose
Registration fees for seminars, workshops, and courses that are directly related to your work and count toward your continuing education credits
You cannot claim expenses incurred:
For study that will prepare you to change careers
For study that is presumed to be a basic requirement for working in your job
Both of these deductions are claimed on line 27a of Schedule C.
12. Professional Memberships
Many real estate agents are part of a trade group, professional association, union, or board, and the membership dues for these organizations are fully deductible business expenses. If you have professional memberships that are directly related to your role as a real estate agent, you can deduct these costs on line 27a of Schedule C.
13. Health Insurance Premiums
Self-employed real estate agents could be able to claim health insurance premiums as tax deductions if their business had a net profit for the year. They can also claim eligible health expenses that exceed 7.5% of their adjusted gross income.
Please note that health insurance premiums are taken as an adjustment to income and not as an itemized deduction. Claim this deduction on line 17 of Schedule 1. Eligible medical and dental expenses for yourself, your spouse, and your dependents can be entered as itemized deductions on lines 1 through 4 of Schedule A.
14. Charitable Donations
Charitable giving is rewarded in the form of tax deductions, but there are a few rules that are important to know.
You can generally claim up to 60% of your adjusted gross income (AGI) for charitable donations made in cash to eligible organizations. This is limited to 20% or 30% of your AGI for capital gain property and for charities listed in the second category of qualified organizations.
For non-cash donations, you can claim the fair market value of the item, subject to valuation. You must be issued a receipt.
For charity event tickets, you can claim the difference between the fair value of the event and the total amount you paid. For example, if you attended a charity dinner in Jacksonville, Florida with an entry cost of $250 and the meal is usually worth $50, you can take a tax deduction of $200.
Once you've calculated the total amount of your eligible charitable donations, you can claim the deduction on lines 11-13 of Schedule A.
15. Tax Preparation and Accountant Fees
For businesses, professional tax help is a necessity. To ensure that real estate agents receive the appropriate help and guidance when filing their taxes, the IRS allows realtors to deduct the cost of small business tax preparation and advice. To claim the deduction for small business accounting services, fill out the space on line 17, Schedule C.
Know Which Deductions You're Eligible For and Keep the Receipts
The IRS understands that it costs money to make money, and tax deductions are a way of making taxation fairer for real estate agents and other self-employed individuals.
If you need assistance working out how to calculate your tax deductions accurately or to recognize the kinds of documentation you might need to keep in order to substantiate your claims, a small business tax professional will put you on the right track.
