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9 tax deductions real estate agents can’t afford to miss

As a real estate agent, filing taxes is complicated as a self-employed business owner. However, the good news is that many of your expenses may be tax-deductible, reducing the amount of tax you owe.

The IRS allows you to deduct “ordinary and necessary” costs for your business, so it’s critical to be understand and track them throughout the year. Now that last year’s tax season has ended, it’s time to get ahead of the game for 2022.

Here are nine deductible expenses that real estate agents can’t afford to miss.

1. Marketing . Marketing and advertising costs can add up quickly when you’re a real estate professional. They might include business cards, yard signs, flyers, mailers, website maintenance, home magazines, and online advertising.

2. Vehicles. Real estate pros are constantly showing property and meeting with clients. So, your transportation expenses can be significant. Fortunately, you can deduct the business use of your vehicle using one of the following methods: 

  • The standard mileage method requires you to track your business mileage for the year and multiply it by 58.5 cents to calculate your deduction. That’s typically best when you drive an economical vehicle.
  • The actual expense method requires you to track your business mileage and expenses, such as maintenance, repairs, insurance, gas, insurance, lease payments, auto loan interest, and depreciation. The percentage of business use determines the deductible portion of those expenses. While it’s more work to keep up with, the actual method may give you a larger deduction than the standard mileage method.

3. Professional fees. Any professional service fees necessary to run your real estate business, such as an attorney and accountant, are deductible for tax purposes. Also, if you use bookkeeping software, it qualifies as a tax deduction.

4. Education. Educational expenses you incur to improve your real estate skills or maintain your professional license, such as online real estate education, are fully tax-deductible. They also include subscriptions to trade publications, seminars, and books related to your field.

5. Meals. If you take clients or colleagues out for meals to discuss business, you can typically deduct 50% of your bill. However, due to the pandemic, there’s a temporary 100% deduction for business meals provided by a restaurant through the end of 2022.

6. Travel. If you need to travel overnight for your real estate business, your airfare, hotel, ground transportation, tips, dry cleaning, and meals are tax-deductible. However, if it turns into a personal vacation, you can only deduct the business portion of your trip.

7. Office expenses. Real estate agents can also deduct the cost of various office expenses, including rent, furniture, utilities, computer equipment, software, printers, supplies, and shipping on your taxes.

8. Insurance. Any business insurance, such as errors and omissions (E&O), professional liability, or business interruption, purchased for your real estate business is deductible. Your personal auto insurance may also be partially deductible if you use it for business purposes.

9. Home office. If you regularly run your real estate business from a distinct space in your home, you may be able to claim a home office deduction, even if it’s just for administrative work, such as bookkeeping and scheduling. Home office expenses, such as furnishings, floor covering, or painting the walls are fully tax-deductible.

Additionally, costs related to your office that affect your entire home, such as homeowners or renters insurance, utilities, maintenance, mortgage interest, and property taxes are partially deductible. You can calculate the deduction using one of the following methods:

  • The standard method requires you to keep good records and calculate the percentage of your home used for business. For example, if your home office is 12 feet by 10 feet, that’s 120 square feet. If your entire home is 1,200 square feet, then diving 120 by 1,200 gives you a home office space that’s 10% of your home.
    In this example, 10% of your qualifying expenses could be attributed to business use, and the remaining 90% would be for personal use. If your monthly power bill is $100 and 10% of your home qualifies for business use, you can consider $10   of the bill a business expense.
  • The simplified method doesn’t require you to keep any records but gives you $5 per square foot of your office area, up to a maximum of 300 square feet. So, that caps your deduction at $1,500 (300 square feet x $5) per year.

No matter which method you choose to calculate a home office tax deduction, you can’t deduct more than your business’s net profit. However, you can carry them forward into future tax years.

If you have any questions about qualifying business expenses, home office expenses, or taxes, consult with a qualified tax accountant to maximize every possible deduction for your real estate business.

Laura Adams is author and host of the Money Girl podcast.

This column does not necessarily reflect the opinion of RealTrends’ editorial department and its owners.

To contact the author of this story:
Laura Adams at laura@lauradadams.com

To contact the editor responsible for this story:
Tracey Velt at tracey@hwmedia.com

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